Currency Briefing - what you need to know for Mon March 5, 2012

The Singapore dollar lost a little ground to the US dollar which ended last week's North American trading session higher against the G10.

IG Markets Singapore said:

The Singapore dollar has lost a little ground to the US dollar in weekend trade, standing at $1.2539. Traders are still very cautious about the slow recovery of the global economy and are favouring safe-haven currencies and assets.

The US is likely to show its jobs market is improving on Friday when it releases its non-farm payroll figures. This is expected to lift risk-on sentiment and give a boost for emerging markets economies.

While the US is unlikely to be unveiling a new quantitative easing package, last week’s boost to liquidity in Europe (in the form of LTRO) is expected to finds its way into Asia. While the timings for this are unclear, the expectations are enough to give Asian assets a short-term lift.

One benefit to the lack of QE3 has been to bolster the US dollar. The currency pair are now trading at $1.2539 which is break through a $1.2520 key resistance level.

GFT meanwhile noted:

The U.S. dollar ended the North American trading session higher against all of the major currencies. No U.S. economic reports were released today (March 2) and as a result, stocks experienced listless trading.

Thanks to recent improvements in U.S. data, Federal Reserve officials have grown less pessimistic about the outlook for the economy. This has led investors to readjust their interest rate expectations with some looking for the Fed to raise interest rates as early as 2013. With Fed Presidents expressing more optimism about the current state of the economy, we can’t blame investors for bidding up the dollar.

This afternoon (March 2), Fed President Bullard said he was hopeful that the U.S. would experience a modest expansion in 2012 and he sees inflationary risk for the ECB’s balance sheet program. Although Bullard is not a voting member of the FOMC this year, he is right that the ECB’s efforts will increase price pressures but austerity also provides an offset.

The bottom line is that the Fed is beginning to shift gears thanks to the improvement in data and this fundamental support for the dollar’s rally could keep the currency bid.

RBS, on the other hand, reported:

The USD strengthened against the G10 on what was broadly a very quiet session to close out the week. Our EU Economists have revised their forecast and now expect the ECB to remain on hold at the March meeting.

We believe that this result is priced into the market at this stage given the improvements in EU data (or rather, stabilization at low levels) and upward revisions to inflation, and as a result does not significantly alter our negative EUR view (we currently hold short EUR/USD and EUR/CAD exposure).