Singapore dollar hits new one-year high

The local currency has been gaining ground on the USD in the lead-up to Fed’s open market committee meeting.

IG Markets Singapore said:

The Singapore dollar has hit a new one-year high against the greenback as it trades at $1.228 this morning.

The local currency has been gaining ground on the USD in the lead-up to Fed’s open market committee meeting on Thursday where it is widely expected to announce more asset-purchases, known as QE3.

This has put downward pressure on the greenback as it weakens against major currencies.

The USD has also seen outflows into riskier currencies as confidence in the global economy and the eurozone crisis improves.

Last night we saw Germany support the EU’s rescue fund in a high profile court case, which had been a key risk factor. Assets rallied after the positive verdict.

BK Asset Management meanwhile noted (for 12 September 2012 trading):

The recent price action of the U.S. dollar tells us that investors are prepared for QE3 from the Federal Reserve.

Knowing this, savvy traders will immediately wonder how much impact a third round of Quantitative Easing can really have if the market has already discounted the announcement.

While it is true that most economists and investors expect the central bank to ease tomorrow, we believe that the dollar could fall further if the Fed pulls the trigger on QE3.

There's still some skeptics out there who are worried that the election could handcuff the Fed's hands or that the central bank simply doesn't have the guts to make such a big decision when data has been underwhelming but not abysmal.

There is also a subset of investors who believe in QE3 but don't want to initiate any new positions until the announcement is actually made.

Perhaps that's the smartest course of action considering that the size and scope of QE3 is still up in the air. U.S. dollar traders are positioned for QE3 but not necessarily for a specific size or span of time over which asset purchases will be conducted.