Singapore dollar little changed against the greenback

Even as the US dollar strengthened against major currencies, it gained very little ground against the Singapore dollar.

IG Markets Singapore said:

The Singapore dollar is little changed against the US dollar this morning despite the greenback strengthening against major currencies.

Last night the action was all about the Fed minutes released.

Traders were looking for clues as to another stimulus package but nothing was announced by the central bank.

QE3 would be dollar negative so the greenback lifted as no news was announced.

Against the local currency, it gained very little ground and trades at $1.2647 this morning.

Tomorrow sees China and Singapore GDP estimates released which could have some bearing on the Sing dollar.

BK Asset Management meanwhile noted (for 11 July 2012 trading):

The euro fell to a fresh 2 year low against the U.S. dollar after the release of the FOMC minutes. The weakness of the euro reflects the market's ongoing concern about growth as nothing is good enough for the euro.

The Spanish government announced new plans to cut its budget deficit by EUR65 billion which should have been positive for the euro because it reduces the risk of a sovereign bailout and puts the country closer to receiving the money that it needs to save its banking sector but the euro barely budged.

European equities on the other hand responded positively while Spanish ten year bond yields continued to tick lower. The problem is that more austerity will only prolong the recession in Spain especially since the government plans to raise the value added tax by 3 percentage points from 18 to 21 percent.

Expectations of faster balance sheet expansion by the ECB versus the Fed seem to be the only thing that matters to the EUR/USD right now. The prospect of sluggish growth in the months to come means that there is a very good chance the ECB will have to introduce another long term refinancing operation (LTRO). On the other hand, today's FOMC minutes tell us that the bar is still high for QE3.

RBS, on the other hand, reported (for 11 July 2012 trading):

G10 FX markets held in fairly tight ranges today as a general risk-negative tone during US hours led to very modest declines in risk oriented currencies vs. the USD heading into the FOMC minutes.

The minutes did little in our view to raise or lower the expectations for QE3 in the US, and the initial market reaction was a rise in the USD, (though in the hours that followed the USD surrendered those small gains against most of the G10) indicating that the market may have been expecting a more concrete signal of additional QE in the minutes.

DBS Group Research said:

Since the start of June, bulls and bears have struggled between the US dollar and the euro. Until recently, there was more comfort in the greenback’s role as a safe haven currency on the back of America’s relatively better fundamentals against Eurozone.

While this continues to hold true, the dollar’s premium has nonetheless been eroded by the latest slew of disappointing US data and corporate earnings/guidance. Unfortunately, the disappointment was only bad enough to acknowledge that the US economy was slowing and vulnerable to further headwinds from the Eurozone crisis and a potential US fiscal cliff later in the year.

As shown in yesterday’s FOMC minutes, the US slowdown was not sufficient to lean the Fed towards a third round of quantitative easing or QE3. Unsure whether the US slowdown was transitory or permanent, the Fed took the middle course and extended Operation Twist to the end of the year.

Overall, the US dollar is still preferred over the euro. Uncertainty over how the US economy will slow is still better than uncertainty over how deep the Eurozone recession will be. While the fall in the US employment rate has stalled at 8.2%, the Eurozone jobless rate has soared to record double-digit levels with no signs of abating.

As far as US fiscal woes go, the market does not see a panic in US treasuries. In fact, Eurozone’s sovereign debt crisis has led investors to seek safety in US government bonds. One can say the market has done the Fed a favor by keeping down US long bond yields. Bottomline, stay with the threatened (US dollar), and not the threat (the euro).