There had been panic buying of US dollars.
IG Markets Singapore noted:
Asian currencies did very little overnight as they await the end of the Fed's two-day policy meeting.
The Fed is the world's most influential financial institution and can shift FX markets considerably. Many expect a pullback in QE3 to be part of the meeting's discussion points as the US economy improves.
This would have a dramatic effect on risk currencies which have seen healthy inflows from the increased liquidity.
This cautious tone spread to Singapore as the local currency was virtually unchanged against the greenback overnight.
It currently trades around $1.2340 as it remains in a tight trading range.
DBS Group Research meanwhile reported:
On Monday, there was panic buying of US dollars against the currencies of export-oriented countries in Asia – the Korean won (KRW), the Taiwan dollar (TWD) and the Singapore dollar (SGD). USD/KRW surged to an intra-day high of 1093.73 on January 28, its highest level since end-October.
It was less than a fortnight ago that it fell to 1054.30, its lowest level since July 2011. The same trend was also witnessed in USD/TWD, and to a lesser extent, in USD/SGD.
The weak Japanese yen (JPY) was cited as the catalyst for the panic, on belief that once USD/JPY crossed above 90, it could spark a currency war, a term loosely used at the World Economic Forum in Davos last week.
This was quite a turnaround from the mood that the weak yen was one of the reasons that helped to revive risk appetite in global financial markets since mid-November 2012.
Naturally, the market volatility in the past week brought back bad memories of September 2011 when the Eurozone crisis hit global financial crisis.
This raised questions as to whether our view still stands that 2013 is about a weaker USD and a weaker JPY against Asia ex Japan currencies. We have not changed our minds, and it looks like stock markets share the same view too.
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