Currency Briefing - what you need to know for Thurs Feb 23, 2012

The Singapore dollar slipped against the US dollar amidst global economic uncertainty.

Justin Harper, IG Markets Singapore head of research, said:

The Singapore dollar has slipped slightly against the US dollar and is sitting just shy of the psychological $1.26 level. Risk sentiment has dropped off this week to be replaced with a level of uncertainty over the state of the global economy.

Asian currencies normally suffer in these bouts of concern as traders scale back their risks across equities, currencies and commodities. Yesterday, China showed its manufacturing activity was still in contraction, despite slightly improving from the previous month.

This set the scene for similarly disappointing factory output data from Europe and dampened stock markets across US and Europe. Traders are looking for the next catalyst to boost risk-on sentiment. Up until Monday, this was the anticipation of a second Greek bailout being agreed.

Now this has been signed off, the markets seem to be a bit directionless and this is tugging on Asian currencies.

Rising oil prices are also starting to weigh down energy-hungry Asian economies and fears of imported inflation hampering growth.

This sideways movement is expected to continue for the remainder of this week with no mood-changing economic news expected out of the US.

Meanwhile Kathy Lien, Director of Currency Research for GFT, noted:

It has been a busy morning in the foreign exchange market for traders focused on anything but the euro. EUR/USD has been stuck in an extremely tight 50 pip trading range since yesterday's North American close.

Weaker than expected Eurozone PMI numbers and rating agency Fitch's decision to downgrade Greece's sovereign debt rating to C from CCC failed to deal a blow to the euro. Signs of slower economic activity and the deteriorating attractiveness of Greek bonds failed to hurt the euro as investors hold out hope that Greece will successfully receive its second bailout by March 20th and avoid default.

There are still a number loose ends that need to be tied up along with a heavy dose of unanswered questions - all of which poses a risk to the euro but for the time being, the fact that the EUR/USD holds near its year to date highs is a sign that investors err on the side optimism.

RBS, on the other hand, reported:

The GBP fell sharply during the UK morning after the BoE's MPC minutes revealed that two members, Posen and Miles, voted for £75bn of QE in February and settled in the 1.5660-90 range for the majority of the US trading day.

Meanwhile, the JPY continued to weaken gradually and USD/JPY broke back above 80 for the first time since the 4 August BoJ intervention. While the official data will not be available until the end of the month, there is increasing likelihood that the MoF / BoJ is using "stealth" intervention to weaken the JPY.