Singapore dollar trades at $1.2369

The US dollar is forecast to continue to face outflows as traders move into risk currencies.

IG Markets Singapore said:

The Singapore dollar has held onto the gains it notched up against the greenback trading at $1.2369 this morning.

The US dollar had slipped amid below heightened talk of the Fed announcing QE3 this week which would push down the value of the USD.

As we head towards Thursday’s Fed meeting the greenback is likely to continue to face outflows as traders move into risk currencies.

Last Friday’s jobs data came in well below expectations as has added to the expectations of another round of asset-purchasing from the Fed, known as QE#.

But Asian currencies face an uphill struggle with weak data from China adding to fears the region’s economies could still suffer.

DBS Group Research meanwhile noted:

Markets are not doing anything much ahead of two key events.

Tomorrow, the German Constitutional Court will vote on the European Stability Mechanism (ESM) and Fiscal Compact. No one expects the court to block either measure.

On the other hand, the court is likely to impose conditions that will highlight Germany’s reluctance in providing more financial aid to struggling EU nations, and its unwillingness to push for further EU integration without the consent of the German people.

Overall, there will be relief and disappointment, but this will not be enough to push the euro either way.

Next, the FOMC meeting on Thursday will probably be more important.

USD bears are keeping their fingers crossed that the Fed to make concrete its intentions on QE3. They are hoping for a replay of the weak USD environment in 2H10.

Back then, Germany agreed to form the European Financial Stability Fund (EFSF) in May 2010, the same month the European Central Bank (ECB) formed the Securities Market Programme and Greece subjecting itself to a full bailout program.

The Fed telegraphed its intention on QE2 at Jackson Hole in August (EFSF was officially launched this month), which it eventually delivered in November, just before the mid-term US elections.

What is different today is that Spain is still resisting pressure to seek a full bailout in spite of the ECB delivering its Open Market Transactions Scheme last week.

There was another lesson back in 2H10 – USD recovered after QE2 was launched, a classic case of buy the rumor, sell the fact.