Singapore dollar retreats below 1.27 level

IG Markets Singapore says SGD/USD traders are likely to position themselves for a fresh injection from the Fed in the coming months.

Here’s more from IG Markets Singapore:

The Singapore dollar revisited the 1.27 level before retreating just below that figure after the Singapore opening.

Traders looking forward to the QE III announcement last night were disappointed by the Fed’s decision to remain in 'wait-and-see' mode, rather than acting now.

Today's focus will be on HSBC's latest reading on China's manufacturing sector; any surprises could give the market a wake-up call.

SGD/USD traders are likely to position themselves for a fresh injection from the Fed in the coming months. The tone of the statement and the reduction for US growth estimates, on the back of slowing jobs and tough credit markets, have left the door open for QE III later in the year.

Meanwhile BK Asset Management noted (for 20 June 2012 trading):

The market's reaction to the Federal Reserve's monetary policy decision was fascinating. Nothing that the Federal Reserve said or did was positive for the dollar and yet the greenback rallied after the release of the FOMC statement and throughout Bernanke's press conference.

In between, the dollar reversed course, leading to significantly intraday volatility but eventually by the end of the North American trading session, the dollar was lower against euro. This rollercoaster price action tells us that investors expected more from the Federal Reserve even though they over delivered by growing more dovish.

Unlike earlier this month, Bernanke did not downplay the weakness in the U.S. economy. He admitted that the Fed was too optimistic about the economy and indicated that their outlook has changed.

Throughout his press he said repeatedly the Fed is prepared to take further action, which is a strong signal that QE3 is in play. To drum this point in even further, Bernanke said the Fed still has ammunition, would consider further asset purchases and can provide additional support for the economy with an intention to do what they can.

There's no way to interpret this to mean anything outside of a growing intention to ease again which is negative for the U.S. dollar. It took investors a while to realize this, but by the end of the North American trading session, they did.

RBS, on the other hand, reported (for 20 June 2012 trading):

The FOMC opted to extend Operation Twist rather than begin a new round of unsterilized bond purchases (QE3), and the initial reaction was a strengthening of the USD as the market appeared to have lingering expectations for outright bond purchases.

Because the FOMC sells an equivalent amount of short-term securities to absorb the extra liquidity added when it purchases longer-term securities, we believe that the extension of Operation Twist has no impact on the USD independent of its (likely dampening) effect on future interest rate expectations.

The FOMC statement noted that the Fed was prepared to take further action as appropriate to support an economy recovery and sustained improvement in the labour market. Bernanke noted that QE3 was among the possible actions in his press conference.