Currency Briefing - what you need to know for Wed April 25, 2012

Recent inflation data pushed the local currency to trade at $1.2461.

IG Markets Singapore said:

The Singapore dollar has held steady against the greenback as we head into an important Fed meeting which may lead to a swing in investor sentiment.

The local currency trades at $1.2461having edged up after last week’s higher-than-expected inflation data gave the Singapore dollar a boost.

But the week’s biggest potential game changer comes tonight at the Fed’s April meeting. If quantitative easing (QE3) is discussed this will influence the currency pair in tomorrow’s trading.

A QE3 discussion is likely to put downward pressure on the US dollar as traders prepare for cheap liquidity to flood the market once more. But we have no clear signs on the likelihood of QE3 as traders are left guessing.

Asian currencies saw inflows last night as risk on sentiment came back onto trading floors after buoyant US earnings, namely Apple’s almost doubling of profits.

GFT, on the other hand, reported (for 24 April 2012 trading):

The euro ended the North American trading session slightly higher against the U.S. dollar. Although we can attribute the currency’s strength to the rally in the stock market and the decline in Spanish bond yields, if we take a step back, we can easily see that the EUR/USD has been doing nothing but consolidate.

For the past 2.5 weeks, the currency pair has fluctuated within a tight 200 pip range between 1.30 and 1.3227. Spain has been a nagging problem but has yet to blow up in the market’s face. Ten year Spanish bond yields remain below 6 percent, limiting the risk of a move to 7 percent in the near term.

The euro was unfazed by political troubles in the Netherlands and France also shrugged off weaker PMI numbers. Continued liquidity from the ECB has kept the currency supported while the prospect of more stimulus from central banks prevented a deeper slide in currencies. Few investors will argue that more trouble lies ahead for the Eurozone but so far we have yet to see this priced in the asset markets.

The “latest” rally in the euro can be attributed to weaker U.S. economic data and the implications it has for the Federal Reserve’s monetary policy decision on Wednesday. Disappointments in the housing market and a pullback in consumer confidence could encourage Bernanke to be more dovish but in our opinion, the FOMC rate announcement will not be as unambiguously negative for the dollar as some expect.

If the Federal Reserve is less dovish than the market expects, the EUR/USD could slip back towards the bottom of its recent range. If they are more dovish, the EUR/USD could break above recent highs.

RBS meanwhile noted (for 24 April 2012 trading):

Today was another fairly quiet session in the US and the mix of data releases out of the US was slightly negative. But the data calendar heats up noticeably tomorrow: The FOMC and RBNZ decisions are due and the UK releases 1Q GDP.

Our US Economics team expects few meaningful changes in the FOMC statement, projections (both economic and FFR), or press conference. This could disappoint participants anticipating a less-dovish set of projections and those expecting a signal of further easing.

UK GDP is also a focus: we are against the consensus expecting a -0.1% print and technical recession on the back of weakness in construction. Following recent gains, GBP might decline after initial headlines show that the UK entered into a technical recession. But our UK Economics team notes that away from construction, the picture for the UK economy is much more positive and that the most recent ONS construction data appears particularly weak.