Singapore dollar trades at $1.235

Major currencies have all gained on the US dollar, says IG Markets Singapore.

IG Markets Singapore said:

The Singapore dollar has benefited from US dollar weakness which has seen the pair trade below $1.24 for the first time in one month.

Friday’s non-farm payrolls data saw US job creation come in well below expectations which has raised hopes of QE3 being announced as early as Thursday.

This would weaken the greenback. Traders have already been selling off USD ahead of the Fed’s Open Market Committee (FOMC) meeting this week.

Major currencies have all gained on the greenback. The Singapore dollar trades at $1.235 this morning.

It is likely to be a cautious week ahead of the Fed announcement which could easily see the local currency snap back above $1.24 if no QE3 is forthcoming.

DBS Group Research meanwhile noted:

The US dollar depreciated across-the-board last Friday after US nonfarm payrolls disappointed with less than 100K jobs added in August, well below the 130K consensus. July’s number was also revised down to 141K from 163K.

EUR/USD surged to 1.2817 from its open of 1.2625 last Friday on strong expectations that the weaker-than-expected jobs data cleared the path for a QE3 announcement at this week’s FOMC meeting on September 13.

Last Friday’s rise was stronger than the previous day’s move from 1.2600 to 1.2650 on the European Central Bank’s announcement of an unlimited bond purchase program.

Evidently, it takes less effort for the Fed to weaken the US dollar than it is for the ECB to support the euro. We are also mindful that it was the Fed’s symposium at Jackson Hole, and not the ECB, that pushed EUR/USD to first test the 1.26 level on August 31.

Despite this, it is still important to pay attention a key German event one day before the FOMC. On September 12, the German Constitutional Court is expected to rule in favor of the European Stability Mechanism (ESM) and the Fiscal Compact.

The court will, however, telegraph the same message as the ECB last week that struggling Eurozone nations will need to fulfill their end of the bargain on austerity and reforms in exchange for help. The disappointment will probably be on the issue of further EU integration which would require changes to the constitution.

In short, Germany may need to hold a referendum on the issue fiscal union, Euro bonds and the surrender of more sovereignty to Brussels on the management of fiscal policy. After last week’s strong rally, markets will loathe any disappointment from the Fed or Germany.