Singapore dollar moves to below $1.28 against the US dollar

Upbeat traders reduced their positions in the greenback and yen.

IG Markets Singapore said:

The Singapore dollar gained good ground last night as traders were more upbeat over hopes of a fresh round of quantitative easing.

Hopes are growing that the Fed will launch QE3 after some positive comments last night by FOMC member Dennis Lockhart.

This saw equities and commodities rally while traders reduced their positions in the safe have currencies of the dollar and yen.

This led to US dollar weakness and helped the Singapore dollar move to below the $1.28 against the greenback. It trades at $1.275 this morning.

QE3 will also devalue the US dollar so major currencies have gained against it.

However, it is unlikely that Fed Chairman Ben Bernanke will announce a fresh stimulus programme when speaking in front of Congress tonight.

RBS meanwhile reported (for 6 June 2012 trading):

EUR/USD surged during NY hours despite the ECB ramping up language on heightened uncertainty and increased downside risks to the economic outlook.

Our US rates team highlights 4 possible reasons for the surge in risk assets in general, but we would highlight USD positioning as adding fuel to the USD declines. The USD index on June 1 reached its highest level on the 14-day RSI since 2008, indicating extremely overbought conditions.

In our most recent Global Currency Weekly, we revised down modestly our profile for EUR/USD, having reached our 2Q target of 1.26. We see downside as particularly difficult to come by at current levels but would prefer to sell on rallies towards 1.30, a possibility we see as likely during 2H 2012 as US fiscal issues and, eventually, QE3 come into play.

The very strong AUD GDP print helped boost the AUD and supports our call for modest AUD/USD upside. However, with our estimate of short-term fair value model slightly below spot at the time of writing (fair value 0.9886), we would caution against chasing AUD gains at the current juncture.

Finally, today’s Asia session is full of important data releases, including Swiss currency reserves data, where an increase of any more than CHF6.9bn would be indicative of FX reserve growth, potentially due to FX intervention. The Fed’s Yellen speaks ahead of Bernanke’s testimony tomorrow, Australian employment is due and the UK releases services PMI.

GFT, on the other hand, noted (for 6 June 2012 trading):

The euro plunged against the U.S. dollar this morning after European Central Bank President Draghi said the central bank is watching data closely and stands ready to act if necessary.

As expected, the European Central Bank left monetary policy unchanged and laid the groundwork for a move in July. Based upon Draghi's concerns about economic growth and the increased risks to the downside for the Eurozone economy, they have every intention to ease.

In fact, Draghi admitted that "a few council members would have preferred a rate cut today." The only reason why they passed was because Draghi believes that monetary policy "can't fill lack of action" by European governments. Even though he said it is not the ECB's job to push governments into action, there is no question that this is their strategy.

By holding back stimulus, the ECB is effectively pressuring European governments to be proactive so the ECB can be reactive. There are plenty of advantages to waiting until July. By then, they would know the outcome of the Greek elections, see the IMF's assessment of Spain and the market's response to the G20 meeting. If things awry, they can always increase liquidity between meetings.