MW: Dollar tumbles on heels of Singapore rate hike
Euro jumps to nearly a nine-month high on dollar; Aussie near parity
By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — The dollar tumbled Thursday, setting a new lows against various currencies as investors reacted to expectations the Federal Reserve will soon undertake another round of monetary easing to boost the faltering U.S. economy.
The selling momentum accelerated after Singapore’s central bank surprised markets overnight by widening the trading band for the Singapore dollar, effectively tightening monetary policy.
The euro hit the highest in nearly nine months against the U.S. unit, which fell to a new 15-year low versus the Japanese yen and an all-time low against the Swiss franc. The Canadian dollar moved through parity with the U.S. unit for the first time in six months, while the Australian dollar neared parity with the greenback.
The dollar index (DXY 76.55, -0.53, -0.68%) , a measure of the U.S. unit against a basket of major global currencies, fell to its lowest level since December to stand at 76.389, down from 77.061 late Wednesday.
The Singapore announcement highlighted the difference between central banks “that are starting to tighten monetary policy and the few such as the Fed, the [Bank of England] and the [Bank of Japan] that continue to be highly accommodative,” Boris Schlossberg, director of currency research at GFT, said.
“This sharp contrast in policy direction ... could push the dollar even lower,” Schlossberg said, adding that he thinks the greenback “continues to be grossly oversold.”
Federal Reserve Chairman Ben Bernanke is set to deliver a speech on Friday. Until then, what’s been investors’ growing appetite for risk is unlikely to abate in light of a promising start to third-quarter earnings season, said Kenneth Broux, market economist at Lloyds TSB.
If corporate earnings come in strong, this would point toward more weakness for the dollar, he said.
The Fed’s widely expected to begin another round of quantitative easing, which centers on the creation of new money used to purchase government bonds or other assets in a bid to prevent deflation from taking hold, as early as next month.
Quantitative easing, with the prospect of adding to the money supply, is viewed as at least a short-term negative for a currency. The prospect of additional liquidity also stokes appetite for risk — a further negative for the dollar, which tends to lose ground as investors seek riskier assets.
Singapore’s central bank said it would “slightly” widen the trading band of the Singapore dollar against a basket of currencies. Economists had widely expected it to keep policy unchanged.
“Today’s move by Singapore’s Monetary Authority appears to have triggered another wave of [U.S. dollar] selling. This, in turn, will likely provoke more intervention from Asian central banks as they attempt to prevent their currencies from strengthening” against the dollar, said Mitul Kotecha, global currency strategist at Credit Agricole CIB.
The U.S. dollar (USDSGD 1.2948, -0.0080, -0.6142%) moved down 0.6% to trade at 1.2948 Singapore dollars in recent action.
The subsequent recycling of these intervention flows into the euro, the Australian dollar, Japan’s yen and other currencies “will only add to the [dollar’s] suffering,” Kotecha said in emailed comments.
Against the yen, the U.S. dollar (USDYEN 81.1700, -0.6200, -0.7580%) fell to a 15-year low of ¥81.02, according to FactSet Research data. It more recently traded at ¥81.08, down from ¥81.81 in late North American trading Wednesday. See real-time currency data and tools.
The euro (EURUSD 1.4055, +0.0100, +0.7166%) rose to $1.4122, the highest level since late January, and traded in recent action at $1.4084, up from $1.3967 late Wednesday. The British pound (GBPUSD 1.6008, +0.0118, +0.7426%) also rose, climbing to $1.6049 from $1.5897.
The Australian dollar (AUDUSD 0.9950, +0.0052, +0.5254%) traded at 99.67 U.S. cents, up 0.4%, after hitting as high as 99.94 cents.
Many strategists say U.S. parity for the commodity-tied Aussie remains just a matter of time. It would be the first time for parity in 27 years, according to FxPro.
The greenback also fell 0.5% versus the Canadian dollar (USDCAD 1.0011, -0.0023, -0.2292%) to trade at 99.79 Canadian cents.
Moreover, the U.S. unit set another in a series of all-time lows versus the Swiss franc (USDSWF 0.9513, -0.0065, -0.6786%) , slipping as low as 0.9464 Swiss francs, according to FactSet data. In recent action, the U.S. unit changed hands at 0.9487 franc, equating to a loss of 0.9% on the day.
