US dollar falls to $1.2293 against the local currency

Find out here which two factors pushed down the value of the greenback.

IG Markets Singapore said:

The greenback continues its slide against major currencies, and fell below $1.24 against the Singapore dollar.

Last night two factors pushed down the value of the US dollar. Ratings agency Moody’s threatened to downgrade the US economy due to its high debt to GDP ratio.

Secondly, as the Fed’s open market committee meeting grows closer bets for QE3 are gathering pace. This would weaken the dollar further.

The USD fell to $1.2293 against the local currency due to this downward pressure. It could remain at this subdued level until we hear the outcome of the Fed’s decision on how it plans to stimulate the US economy.

DBS Group Research meanwhile noted:

Euro fatigue? Global slowdown/recession? Don’t fret. Policy support is coming from the world’s three largest countries/bloc. The European Central Bank (ECB) has pledged, in exchange for austerity and reforms, to prevent a debt-recession spiral in struggling European countries by keeping their government borrowing costs at sustainable levels.

No one expects the German Constitutional Court to stand in the way of approving the European Stability Mechanism and Fiscal Compact today. The Federal Reserve has telegraphed its intentions on QE3, and may actually deliver at tomorrow’s FOMC meeting. China announced a stimulus program of CNY1 trillion.

Question. Is it time to be bearish on the USD again? Moody’s served notice to US lawmakers that the upcoming budget negotiations will determine if America loses a second triple-A debt rating. Are they listening? Election fever is heading into fullswing into the November US presidential election. The budget and the federal debt are important electoral issues, but not as important as jobs to American voters.

Nonetheless, two fiscal issues are unavoidable by end-2012. The tax cuts expire and could potentially trigger a fiscal cliff. The federal debt limit is reached and will need Congress to vote to lift it, without too much infighting this time please. This creates a tricky situation for the US economy which is starting to be hurt by the Eurozone crisis. This week’s narrower US trade deficit is a symptom.

Yes, the Fed and the ECB has protected financial markets from the Eurozone crisis turning into another 2008 global financial crisis. Unfortunately, their efforts did not spillover into the economy which was still slowing. Will these latest efforts be too late? So many questions. So few answers. Best not to be too gung ho in calling for a sustained USD depreciation. Just keep an open mind for now.

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