Singapore dollar trades at $1.2846 as traders move back to safe haven currencies

The local currency had held steady sitting below the $1.28 mark up until Monday night.

IG Markets Singapore said:

The Singapore dollar has suffered in the backlash as investor sentiment fell off abruptly following the Spanish bank bailout euphoria.

Markets in Asia powered ahead yesterday on news that €100 billion had been loaned to Spain to shore up its creaky banking sector.

But this feel-good feeling ended sharply as investors realised it may push Spain closer to the brink of default.

The Singapore dollar had held steady sitting below the $1.28 mark up until last night when it slipped above this threshold.

It currently trades at $1.2846 as traders move back to safe haven currencies. The euro suffered from this fallout along with Asian currencies that had initially rallied.

Traders are likely to remain cautious going into the second round of the Greek elections this weekend.

GFT meanwhile noted (for 11 June 2012 trading):

After racing to a high of 1.2668 at the start of the Asian trading session, the euro ended the day lower against the greenback. European and North American traders clearly do not share the optimism of their Asian counterparts who drove currencies and equities sharply higher overnight.

The intraday reversal in the EUR/USD and eventually in stocks reflects the market’s skepticism about the Spanish bond deal being the solution to all of Europe’s problems. With 10 year Spanish bond yields rising to a high of 6.6 percent this skepticism is certainly warranted because it does not rule out the risk of a broader sovereign bailout and the risk of a country like Greece leaving the euro.

So far, the rescue of Spain has not turned into a rescue for the financial markets. For the past few months, everyone from investors to central bankers has been sitting at the edge of their seats fearing that more serious problems in Spain would lead to Armageddon in the markets.

Spain's problems deepened after the IMF reported a EUR40 billion capital shortfall in local banks, forcing Eurozone officials to hold an emergency meeting and Spain to accept a EUR125 billion bailout.

This amount would cover the capital shortfall of Spanish banks and provide some additional cushion.
Yet, the EUR/USD failed to hold onto its initial gains because the Spanish bailout leaves many unanswered questions such as which bondholders will be subordinated. It also does not remove the risk of Greece or any other country leaving the Eurozone.

RBS, on the other hand, reported (for 11 June 2012 trading):

The first day of trading following the weekend's announcement that Spain will seek an EU bailout was met with a "buy the rumour, sell the fact" sell-off in risk oriented assets.

One of the key issues outstanding, according to our EU Rates Research team, is whether the bailout will be funded via the outgoing EFSF (to be phased into the ESM in July) or the ESM, with the critical difference being seniority of the program in a restructuring (ESM bonds are only subordinate to the IMF).

Indeed, the day's newswire comments brought conflicting answers to this question, as Germany's finance ministry said it preferred the ESM while an unnamed EU official reportedly said the bailout would likely be financed using EFSF funds.

With little else to focus on, risk oriented currencies sold off vs. the USD with few hiccups during our session. Elsewhere, very dovish comments from MPC's Posen seemed to indicate that he once again voted for additional QE at the June BoE meeting, but with GBP/USD and EUR/GBP having converged with our measures of short-term fair value we maintain a fairly neutral stance on GBP for the time being.