Risk Sentiment Pushes Dollar Lower
Policy tightening in Singapore and positive performance from technology giant Intel raised risk appetite and helped to push the US dollar and the yen lower in currency markets. The Monetary Authority of Singapore (MAS) tightened policy and revalued the nation’s currency and markets perceived the move by the central bank as an expression of confidence in the economic outlook for the country. Better than expected forecasts from Intel also boosted risk appetite and pushed high yielding currencies such as the Aussie dollar. Robert Ryan of BNP Paribas in Singapore stated, “The dollar is being sold against Asia and that’s extended to the majors. Risk-on is the order of day at least in Asia but I wonder how much the MAS influence will extend into Europe.” The euro gained 0.3% vs. the yen trading at 127.25 yen and the Aussie dollar gained 0.4% to trade at 86.86 yen. Some traders say the move by Singapore has prompted speculation that China may revalue its currency. An unnamed trader at a European bank in Hong Kong said, “What Singapore did this morning just increases the pressure on China because the rationale for Singapore to allow currency strength is similar for why China should de-peg. It’s domestic reasons rather than just external pressure.”
Bernanke to Testify Before Congress
Fed Chairman Ben Bernanke is scheduled to testify before the Joint Economic Committee of Congress about the Fed’s economic outlook. Bernanke is widely expected to reaffirm the Fed’s position of low rates for an ‘extended period.’ On Tuesday the euro fell against most major currencies and investors remain concerned about Greece’s high borrowing costs and flat euro zone growth. Investors remain unsure whether Greece can resolve its debt crisis without outside help from the EU and the IMF. Vassili Serebriakov of Wells Fargo stated, “Even though we had a pretty good Greek auction today, people are still finding few reasons to buy the euro in the medium term. Growth prospects are still quite subdued in the euro zone compared to that of the U.S. That’s what really preventing a strong bounce in the euro.”
Soros Warns of Greek ‘Death Spiral’
At a London event organized by the Economist billionaire investor George Soros warned that the risk of a Greek ‘death spiral’ is very real. Soros pointed out that borrowing costs should Greece seek EU/IMF aid are too expensive. Soros stated, “While it’s better than what the market is currently willing to offer, it’s still rather high. It is a question of solvency. If you start charging very high rates as the market does in anticipation of solvency then that pushes you into insolvency.” Soros also warned that the credibility of the euro and the EU is at stake.
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