Singapore dollar struggles to hold onto gains

Traders have taken on a risk-on sentiment as eurozone issues calm down and US corporate earning perk up, says IG Markets.

OCBC Investment Research said:

Traders have taken on a risk-on sentiment this week as eurozone issues calm down and US corporate earning perk up.

Wall Street enjoyed some healthy gains last night as the S&P 500 pushed above 1400 for the first time since May.

This improved sentiment had seen the Singapore dollar dip below $1.24 against the greenback this week.

But it is struggling to hold onto these gains as it sits at $1.2426 this morning.

Traders have been taking profits at these levels and helping to push the local currency lower as a result.

But the mood may swing against Asian currencies later this week when China releases a slew of data which will have a big impact on the ASEAN region and its currencies.

DBS Group Research meanwhile noted:

Fed Chairman Ben Bernanke attended a town hall meeting with educators yesterday. He reaffirmed the need to keep interest rates low to help the US economy return to more normal levels of employment and growth.

More importantly, he did not share the market’s hope and optimism that Europe’s leaders and policymakers were moving fast enough to resolve their debt crisis.

In his view, Eurozone is under tremendous economic and financial stress, which in turn, increases the difficulties for EU leaders to find a solution to the complex problem of creating a fiscal union.

Until then, Bernanke recognized that the Eurozone crisis has started to affect the US economy “pretty significantly” via lower demand for US exports and increased market volatility.

Bernanke affirmed that regulators were now watching the financial system as a whole, implying less complacency over the Eurozone crisis resulting in another 2008-style global financial crisis.

Put simply, markets need to ask themselves if they have become irrational in their exuberance over Eurozone.