Singapore dollar advances against the greenback

Pressure is on the US dollar as investors are cautious about the FOMC meeting, says IG Markets Singapore.

IG Markets Singapore said:

The Singapore dollar continues to advance against the greenback, trading in a tight 30-point range today.

The Singapore market bucked the Asian trend in yesterday’s trading, remaining in positive territory for the whole session after yesterday’s European-led sell-off ended a global rally for risk assets.

Markets saw a pullback in the US dollar as there are growing expectations of QE by the Feb.

Pressure is on the greenback as investors are cautious about the FOMC meeting.

Range trading of the pair will be expected until we have a clear signal, with much importance placed on the meeting.

RBS meanwhile noted (for 19 June 2012 trading):

Risk oriented currencies performed well today as G20 headlines pushed for growth measures and, potentially, the markets began to price in QE3 expectations. While we eventually see the EUR rally as a sell, we remain "aggressively neutral". For now we find EUR/USD too overvalued to buy, but too under-owned to sell.

In this week's Global Currency Weekly we detail our views on the EUR at the current juncture. Ahead today a key risk event will be the BoE minutes released late in the session where there may be some indication that the BoE is prepared to ease.

Watch the voting pattern for whether one or more members joined BoE's Miles in calling for more QE. (Posen and Weale are the most likely candidates to vote for more QE but following his statements at Mansion House, Governor King can't be ruled out).

The market has aggressively priced in easing expectations which has dampened our estimate of GBP/USD fair value via a declining GBP interest rate advantage. While external drivers appear to be a larger driver, we would be better sellers of GBP/USD and while rate spreads imply upside for EUR/GBP, valuation appears stretched making upside limited.

BK Asset Management, on the other hand, reported (for 19 June 2012 trading):

Investors sold dollars ahead of the FOMC announcement in anticipation of cautionary and dovish comments from the Federal Reserve.

This sentiment is a bit surprising considering that less than 2 weeks ago, Fed Chairman Ben Bernanke downplayed the weakness of the U.S. labor market and reset the market's expectations for more stimulus in the process.

Investors are clearly skeptical about Bernanke's nonchalant attitude on non-farm payrolls and believe that even if there is no QE3 tomorrow, the Fed will reassure the market that monetary policy remains extremely accommodative and they are ready to do more if necessary.

The dollar will weaken if Bernanke admits that QE3 is still a possibility, but if he spends more time talking about the distortion that the warm weather had on U.S. data, the dollar should rise.

We do not expect Wednesday's FOMC announcement to be one of those gaming changing monetary policy events but with Bernanke holding a press conference and the Fed releasing their revised economic projections, it could still be a volatile trading day.

DBS commented:

After the G20 Summit on June 18-19, all eyes are on today’s FOMC meeting. At his congressional testimonies on June 7, Fed Chairman Ben Bernanke indicated that the Fed will act if the Eurozone crisis, viewed as a bigger threat to the US economy than a China slowdown, deteriorates rapidly. This raised hope that the Fed may signal a roadmap towards a third round of quantitative easing measures (QE3), or extending its Operation Twist which ends on June 30.

Then again, US long bond yields are at record lows from the US dollar reprising its safe haven role. Bernanke also warned US lawmakers that as far as policy is concerned, the real threat to the US economy comes not from the lack of monetary stimulus, but from inaction by Congress on the approaching “fiscal cliff” problem.

Overall, the Fed’s position is similar to those of many central banks in that nothing is ruled out in recognition of the risks to growth. The Fed will signal its vigilance to provide support, if and when necessary, but is unlikely to signal any urgency to act anytime soon.