Singapore dollar stuck in narrow trading range

The local currency has been one of the region’s best performers this year, says IG Markets Singapore, but has been stuck in a narrow trading range against the US dollar.

IG Markets Singapore said:

Despite the slight uptick in risk sentiment the Singapore dollar has slipped above the $1.25 mark against the greenback.

The local currency spent last week resiliently staying below this ceiling as traders warmed to Asian currencies.

US data has supported a shift to risk-on trading recently, with retails sales and jobless claims coming in better-than-expected.

Singapore has also benefitted from subborn inflation which keeps the MAS policy of currency appreciation firmly on track.

The local currency has been one of the region’s best performers this year but has been stuck in a narrow trading range against the US dollar.

BK Asset management meanwhile noted (for 20 August 2012 trading):

With no major global economic data on the calendar, it has been another quiet day in the foreign exchange market.

The big story today was an article in the German newspaper Der Spiegel talking about the possibility of a yield cap set by the ECB for certain European government bonds.

Considering the risk of rising borrowing costs is the greatest challenge for peripheral governments, a cap would go a long way in ending Europe's sovereign debt crisis from a practical and psychological perspective.

A good example is the psychological impact that the 1.20 peg had on EUR/CHF. If investors knew that the European Central Bank would not allow Spanish and Italian yields to rise above a certain point, they would hopefully stop attacking the bonds of those countries.

If the rumors were true, it would represent major progress for the ECB in their battle to end the region's debt crisis but unfortunately the central bank completely refuted the article.

Later on, the WSJ released an article discussing the dangers of capping European bond yields. They argue that once Spanish yields reach their maximum spread or yield, investors would start to sell German bonds.