Analyst says uncertainty continues to hang over Asian currencies.
IG Markets Singapore said:
Uncertainty continues to hang over Asian currencies this morning, penning the Singapore dollar into a tight channel.
It has failed to break below $1.22 or above the $1.225 mark against the greenback as FX traders show a reluctance to expose themselves to more risk.
The local currency trades at $1.2235 this morning after a tough night on Wall Street and Europe.
Markets are being pushed down by a series of risk events that show no signs of leaving this year. These include the impending fiscal cliff of US budget cuts, Greece’s failure to secure much-needed funding and uncertainty over China’s new leadership.
For the time being, Asian currencies are seeing very little action despite all the hype of QE3 liquidity flooding the region.
BK Asset Management meanwhile noted (for 14 November 2012 trading):
The Federal Reserve is worried about the U.S. economy and according to the FOMC minutes, a number of policymakers want more asset purchases next year.
The U.S. dollar gave up part of its early gains after the FOMC minutes revealed a central bank that is committed to doing more and unfazed by the fleeting economic improvements seen in the month of September.
Having unveiled an open ended asset purchase program the month prior, the fact that in October a number of participants wanted more asset purchases next year is a very bearish development for the U.S. dollar.
Operation Twist ends in December and policymakers are worried that the problems in Europe and the U.S. Fiscal Cliff would slow the recovery even further. This instinct is probably right considering that the 6% slide in the S&P 500 is already making Americans nervous.
Today's weak economic reports certainly didn't help. The FOMC minutes also showed that there is greater support for Janet Yellen's call to link interest rates to economic indicators such as unemployment and inflation than to a specific calendar date, which is the current policy.
Between weaker economic data, the risk of the U.S. falling off the Fiscal Cliff and renewed dovishness by the Federal Reserve, it may be difficult for the dollar to sustain its rally.
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