During early deals on Tuesday, the Singapore dollar rose to a 9-week high against its U.S., and Hong Kong counterparts as the Monetary Authority of Singapore eased its monetary policy, saying it would lower the band in which it allows the Singapore dollar to trade. The Singapore currency also recovered from an 8-day low against the euro.
The Monetary Authority said today in a report that it is re-centering the exchange rate policy band to the prevailing level of the nominal effective exchange rate or the S$NEER, and holding the width of the band unchanged. Moreover, the central bank said the S$NEER policy band would have a zero percent appreciation.
Reports suggest that the action tantamount to a devaluation of the currency by about 1.7%. The decision was taken amid easing external and domestic inflationary pressures, and a deterioration in the global economic environment.
At the same time, the Monetary Authority of Singapore said there was no reason for undue weakening of the Singapore dollar, as the country had sound fundamentals and a resilient financial system.
The Singapore economy contracted worse than expected in the first three months of 2008, the Ministry of Trade and Industry said in a preliminary report today, plummeting by a seasonally adjusted 19.7 percent compared to the previous quarter. This was far below analyst expectations for a 9.0 percent decline following the 16.9 percent fall in the previous quarter.
On an annual basis, GDP was off 11.5 percent versus expectations for an 8.9 percent decline after the 3.7 percent contraction in the previous quarter.
As a result of the data, the Monetary Authority of Singapore lowered its GDP forecast for the year to between minus-6 to minus-9 percent. In January, the MAS had estimated a decline of between 2 and 5 percent.
Singapore's economy grew 1.1 percent in 2008 and 7.8 percent in 2007.
The Singapore dollar rose to a 9-week high of 1.4959 against the US currency during early Asian deals on Tuesday. If the local dollar edges up further, resistance is seen at the 1.483 level. The Singapore dollar has gained around 4 percent against the buck since it reached a new multi-year low of 1.5583 on March 3rd. The pair, which closed Monday's New York trading at 1.5137, is presently worth near 1.5017.
The Singapore dollar gained ground after hitting an 8-day low of 2.0302 against the European currency at 8:00 pm ET. The Singapore currency is currently quoted at 1.9985 against the euro. The next upside target level for the Singapore dollar is seen around 1.968. The pair closed Monday's North American session at 2.0235.
The Singapore dollar that touched a low of 2.2541 against the British pound during Tuesday's early Asian deals strengthened thereafter. At 8:15 pm ET, the Singapore currency reached a high of 2.2228 versus the pound, compared to Monday's closing value of 2.2486. On the upside, 2.19 is seen as the next target level. The pair is currently trading at 2.2311.
The Singapore dollar edged higher to 5.1800 against the Hong Kong currency during early Asian deals on Tuesday. This set the highest point for the pair since February 10, 2009. If the pair gains further, 5.22 is seen as the next target level. The Singapore currency is currently quoted at 5.1611, compared to 5.1201 hit late New York Monday.
Traders are looking ahead to the French current account report for February, which was a deficit by EUR 2.8 billion in the previous month, due out in the upcoming session.
Across the Atlantic, the U.S. Labor Department is set to release a report on the producer price index for March at 8:30 AM ET on Tuesday. Economists expect the headline index for March to show an unchanged reading and the core reading to show 0.1% growth.
Retail sales of food and retail companies with one or more establishments that sell merchandise and associated services to final consumers are slated to be released at 8:30 AM ET on the same day. Economists estimate a 0.3% growth in the retail sales for March, while they estimate a 0.1% increase in retail sales, excluding autos.
The Commerce Department is scheduled to release its business inventories report for February at 10 AM ET. The report is expected to show a 1.1% decline in business inventories for the month.
In the afternoon, the Federal Reserve Chairman Ben Bernanke is set to deliver a speech in Atlanta on the financial crises.
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