Singapore dollar stuck at 1.2263

Analyst says the world economy is not healthy.

IG Markets Singapore said:

While talks are progressing to avert the fiscal cliff disaster it is still too early to see any pickup in Asian currencies.

This has left the Singapore dollar stuck at 1.2263 this morning as it slowly loses value against the greenback.

The local currency had been trading in a very tight range stuck between 1.22 and 1.225 before breaking through this ceiling late last week as sentiment went south.

Despite some renewed optimism that US lawmakers can hammer out a fiscal cliff saving deal the Singapore dollar continues to slip.

FX traders want to see more concrete plans for tax revenues and budget cuts from Congress before they extend their risk-on trading.

DBS Group Research meanwhile noted:

The world economy is not healthy. Eurozone has entered into a double-dip recession, a feat that is likely to be followed by Japan. The US economy is still holding up reasonably well but the fear of it falling over a fiscal cliff was felt in US equities.

China appears to be the only bright spot amongst the world's largest economies. With growth seen turning the corner, organizations such as the OECD are beginning to become comfortable about the Chinese economy growing at an average 8% over the next five years.

Unfortunately, markets are not convinced that China alone will be enough to offset the weakness in the others. Investors will be more comfortable if growth is sustained in the world's two largest economies - America and China. If so, this will provide more comfort in the view for emerging Asia to stay the fastest growing region for the world in 2013.

On the US fiscal cliff, there is hope that the White House and the Republicans may find common ground and avoid the political brinksmanship that led America to lose one of its triple-A debt rating in August 2011. Opinion polls indicated that Republicans are likely to be blamed if the US economy goes over the cliff i.e. recession.

President Barack Obama may yet get an agreement from the Republicans to extend tax cut for most Americans except the top income earners.

As for the US economy, the leading indicator out on November 21 will be important to watch. The leading indicator hit a new post-2008 crisis high in September on the back of the Fed's QE3 announcement.