Local currency back in $1.28 zone

On Friday morning the Singapore dollar hovers just below $1.28 as traders mull over the EU growth package and its possible calming effect on global markets, says IG Markets Singapore.

Here’s more from IG Markets Singapore:

The Singapore dollar is back in the $1.28 zone after sentiment weakened last night.

An ambitious €120 billion growth plan for the eurozone had yet to hit the markets, although it’s still questionable what this will do to the fortunes of risk assets.

Instead traders were left downbeat by US GDP Q1 figures which can in at a weak 1.9%. This saw a flight to safe haven assets like the greenback and yen.

The local currency is hovering just below $1.28 this morning as traders mull over the EU growth package and its possible calming effect on global markets.

Asian currencies are still hoping for an announcement from the Chinese government about a fresh stimulus package and further integration of Chinese currency markets.

BK Asset Management meanwhile reported (for 28 June 2012 trading):

Deleveraging and risk aversion has once again sent the dollar higher against almost all of the major currencies. The only currency that outperformed the dollar was the Japanese Yen.

As we had mentioned in yesterday's note, risk on risk off will be the primary driver of currency flows over the next 48 hours. This morning's U.S. economic reports had little impact on the U.S. dollar. First quarter GDP growth was confirmed at 1.9 percent but personal consumption was revised lower while prices were revised higher.

The data shows that the U.S. economy has slowed significantly since the fourth quarter, when it grew by 3.0 percent. Nonetheless positive growth is still something to cheer about considering that the U.K. contracted by 0.3 percent in Q1 and the German economy grew by a mere 0.5 percent.

Jobless claims declined but the drop was small considering that the prior week's report was revised higher. While claims below 400k is nothing to worry about, the improvement has not been significant enough to reflect momentum in the labor market. As a result, we do not expect Federal Reserve officials to adjust their outlook for monetary policy following this week's economic reports.

On Friday, personal income and spending numbers will be released alongside the Chicago PMI report and final University of Michigan consumer sentiment figures. With retail sales contracting in the month of May and average hourly earnings remaining unchanged, we expect another round of weak reports.

RBS, on the other hand, noted (for 28 June 2012 trading):

FX markets were very quiet again today, with reports on the progress of the EU summit being the main driver of markets. After falling sharply overnight, EUR/USD rose to 1.2450 from its lows of the day near 1.2410 late in the afternoon that the EU leaders are considering letting the EFSF/ESM purchase Italian and Spanish debt on the primary markets.

Away from the summit, the flash Euro-area inflation print for June is likely to be a key data point for EUR/USD. Consensus currently is expecting an unchanged result at 2.4% but our live inflation tracker predicts inflation could fall to 2.2%, a result that could lead to further pricing in of a ECB rate cut at the July meeting.

Japanese National inflation for May is due during today's Asia session. While USD/JPY may continue to be driven by external factors in the very-near term, this is the final inflation print ahead of the July meeting, and an undershoot in core CPI could lead the markets to price in additional easing by the BoJ in July. This could lead to a weakening in the JPY but a disappointment at the EU Summit may lead to safe-haven flows, limiting JPY downside.