Singapore dollar trades at $1.2834

The local currency has gained slightly on the greenback as a G7 conference call took the edge of the eurozone crisis, according to IG Markets Singapore.

IG Markets Singapore said:

The Singapore dollar has gained slightly on the greenback as a G7 conference call took the edge of the eurozone crisis yesterday.

The local currency trades at $1.2834 this morning having flirted with the $1.29 ceiling at the start of the week.

Traders were lifted by hopes that world leaders would be ready to intervene if the crisis deepened.
This could still happen if the Spanish banking sector is left to collapse sending markets into a tailspin.

But for the time being a sense of calm seems to have temporarily returned to currency markets, which has boosted the Singapore dollar along with other Asian currencies.

This is another important week for central banks which can influence the USD/SGD pair. The Fed’s Ben Bernanke testifies to Congress on the health of the US economy tonight, while later today the ECB meets to discuss interest rates.

RBS, on the other hand, reported:

After slipping overnight after downward revisions to French and German services and composite PMIs, EUR/USD held in a tight range ahead of the ECB meeting.

Our EU Economics team expects the ECB to leave the benchmark rate unchanged but to revise down its forecasts for growth and to extend fixed rate full allotment lending. Considering the sharp declines in the EU 5-year swap rate, we believe the market may be expecting a rate cut to come at the ECB meeting.

An unchanged policy rate could disappoint some participants and given the record net short EUR positioning per IMM data, the EUR could get a bounce in such a scenario.

But even if the EUR bounces initially on an unchanged rate, we think there could be hints or signals of future easing in the statement and the press conference, which, along with possibly lower growth and inflation staff forecasts, will likely keep the EUR weak. Thus we would look to fade any rallies in the EUR.

GFT meanwhile noted:

One of the most important event risks this week is Wednesday’s European Central Bank monetary policy announcement. The near-term outlook for the EUR/USD hinges on the ECB’s degree of proactiveness.

Throughout Europe’s sovereign debt crisis, the ECB has only been reactive but after avoiding the issue for weeks and constantly passing the ball back to politicians, ECB President Draghi will have no choice but to address the deterioration in economic data, the strain on Spanish finances and the decline in asset markets around the world.

Based upon recent developments in the financial markets and the economy, the ECB should ease quickly and aggressively. However the decision will not be an easy one because Mario Draghi is extremely close in succeeding on his attempts to pressure European politicians into action.

If he waits a few more weeks, we will probably get an announcement from G20 leaders. As a result, the ECB meeting will be a very close call because the ECB needs to ease but there are advantages to waiting.

In addition to the monetary policy announcement and ECB President Draghi’s press conference, the central bank will also release its latest quarterly inflation and GDP forecasts – both of which are expected to be lowered.