SINGAPORE (Dow Jones)--The Singapore dollar sank to a three-month low against the U.S. dollar Wednesday, as fears about vulnerability in the European banking system and further signs of global slowing prompted a general pullback from risk.
The U.S. dollar rose as high as S$1.2517, its highest level since May 25, from S$1.2404 late in New York. The rise tracked a stronger dollar against other Asian currencies Wednesday.
Moody's Investors Service downgraded French banks Societe Generale SA and Credit Agricole SA Wednesday, citing funding problems and high exposure to Greek debt. European policy makers have been unable to make headway on ending Greece's solvency crisis, as investors Wednesday pinned their hopes on the cash-rich economies of China and Russia to shore up deeply discounted euro zone periphery debt.
"Generally, the European situation is keeping the sentiment down. There are several events over the next two weeks that will impact the markets but the key thing is still how Europe will resolve its crisis," said Phillip Wee, a currency analyst with DBS Bank.
Also pushing the dollar higher against the Singapore unit are growing expectations that the Monetary Authority of Singapore will step back from its tightening stance when it holds its October policy meeting.
In light of worsening global economic conditions, some economists now believe the MAS may be forced to slow the pace of the Singapore dollar's rise against a basket of currencies, reversing their earlier call that the MAS would stand pat.
Inflation remains a challenge, but more and more banks are now predicting a more gradual slope of appreciation for the Singapore dollar. The city-state uses the strength of its currency as its main tool for addressing price growth, rather than interest rates.
The U.S. dollar fell back to S$1.2466 after breaching the key S$1.2500 level earlier in the day. Strong psychological resistance will remain at that level, said Wee.
The Singapore government bond curved steepened slightly as yields rose slightly at the longer end, following a disappointing 10-year U.S. Treasury auction Tuesday.
Via: http://online.wsj.com/article/BT-CO-20110914-703190.html
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