Singapore dollar regains some ground following fall against the greenback

The decline in investors’ sentiment began as European business activity declined for a fifth straight month in June, says IG Markets Singapore.

IG Markets Singapore said:

The Singapore dollar declined against the greenback in the US session yesterday, before regaining some ground this morning.

The US dollar rallied hard against most currencies, as investors sought refuge from the economic headwinds in the perceived safe-haven currency.

USD/SGD consolidated around the 1.27 level in Asian trade yesterday, before surging more than 100 pips to print a high of 1.2794, as all risk assets suffered from selling pressure.

The decline in investors’ sentiment began as European business activity declined for a fifth straight month in June. Risk assets also suffered further when Philly Fed results came in at their lowest levels since August.

BK Asset Management meanwhile noted (for 21 June 2012 trading):

The euro sold off sharply against the U.S. dollar today, erasing all of the past week's gains in the process. As Eurozone Finance Ministers continue to meet behind closed doors, comments out of the meeting seem to confirm that progress is being made.

With this in mind, no major announcements are expected as the 2-day meeting is aimed at preparing for the EU Summit at the end of the month. The same is true of tomorrow's four way summit between German Chancellor Merkel, French President Hollande, Italian Prime Minister Monti and Spanish Prime Minister Rajoy.

We are hopeful that all of the meetings will yield results but based on the price action in the EUR/USD and the financial markets today, investors are concerned about the desire and ability of EU leaders to make the politically tough decisions that are needed to end the crisis.

More specifically, everything is up to the Germans who do not want add further burden on their taxpayers and form a tighter political union that forces them to cede control on areas that are normally decided by national governments.

So far we haven't heard concessions by the Germans directly, but the G20 statement and the scheduling of important meetings suggest that they could finally be warming up to the idea.

RBS, on the other hand, reported (for 21 June 2012 trading):

The USD rallied sharply against the G10, potentially a continuation of USD strength on the back of the FOMC's decision not to enact additional QE yesterday.

The mix of US data was fairly poor, with the Philadelphia Fed index for June falling sharply to -16.6 while the latest initial jobless claims data held steady at 387K in the week ended 16 June, which likely contributed to a generally risk adverse trading environment.

The EU-27 finance ministers meet again tomorrow and will likely hammer out the details of a growth plan that the EU leaders will discuss at their 28-29 June meeting. Citing an unnamed source, one newswire reported that these leaders agreed in their meeting that Spain's bank bailout would be funded using the EFSF and then later with the ESM.

MNI's China flash business sentiment survey for June could fall after the June HSBC PMI declined slightly. We expect the German IFO to edge higher, possibly providing some relief for the EUR, but take it with a grain of salt after soft PMIs in Germany.

Finally, Canadian headline CPI on a y/y basis may fall sharply due to base effects and fuel prices: the y/y print in May 2011 was 3.7%, the highest inflation print since 2003. The gasoline category has risen over 2.5% m/m in 4 straight months. Falling oil prices could reverse this trend.