Singapore dollar strengthens to $1.2572

There was an underlying sense of optimism after a dreadful start to the week caused by jitters over Spain and Greece, says IG Markets Singapore.

IG Markets Singapore said:

The Singapore dollar has crept up against the Greenback moving below the $1.26 level as investors sentiment improved last night.

Having traded above $1.26 for the early part of the week the local currency strengthened to $1.2572 this morning. Global markets and risk assets endured a mixed bag last night with no real purpose among traders.

But there was an underlying sense of optimism after a dreadful start to the week caused by jitters over Spain and Greece.

This saw some US dollar weakness which benefitted the Sing dollar.

It could be tested again at the $1.26 level this week with Eurozone worries still high with bond yields close to dangerous levels.

BK Asset Management meanwhile noted (for 25 July 2012 trading):

The euro enjoyed its strongest one-day rally against the U.S. dollar since the beginning of July. While we would love to see the EUR/USD bottom because that would mean the end of all this uncertainty and volatility, today's recovery is nothing more than a relief rally.

The rebound was triggered by comments from ECB member Nowotny who argued the merits of giving a banking license to the European Stability Mechanism. The mere hope that additional crisis management solutions are being discussed by European policymakers helped to stem the losses in the euro.

However let's be clear, a license has not been announced and in fact Germany's Constitutional Court has not even approved the ESM. Economic data out of the Eurozone continues to surprise the downside with German business confidence falling to its lowest level in more than 2 years.

Independent rating agency Egan Jones also cut their rating of Italy's sovereign debt to CCC+ from B+, which puts the country deeper into junk status. While the impact on the euro was nominal because Italy is still rated as Baa2 by Moody's and BBB+ by S&P, Egan Jones' decision reflects the growing risk of holding euros.

With Spanish bond yields at a level that is unsustainable over a long period of time, unless we see a permanent decline in yields, the Eurozone sovereign debt crisis is far from over and for this reason, the EURUSD recovery is nothing more than a relief rally.