Cyprus fallout may boost Singapore dollar vs. euro
LONDON: Selling euros against the Singapore dollar may prove attractive to investors who fear their euro-denominated holdings may be at risk after a Cyprus rescue that hit uninsured depositors.
Those fears will remain even if European Central Bank Executive Board member Benoit Coeure tried to defuse the impact of comments from Eurogroup head Jeroen Dijsselbloem, who said Cyprus’s recent rescue was a new template for resolving euro zone banking problems.
Notwithstanding Coeure’s comments, once the toothpaste is out of the tube, it is impossible to get it back in.
Large investors will surely have noted Cypriot Finance Minister Michael Sarris’s comments that losses for big bank depositors in Cyprus could be around 40 percent.
It is surely inconceivable that large investors, including central banks, are not considering how best to manage their euro-denominated risk following Dijsselbloem’s comments, including mulling shifting it to “safer” jurisdictions.
The Singapore dollar might be part of the solution, not least for Asian central banks, given Singapore’s robust regulatory environment and reputation as a solid financial center.
There is also an argument that the Singaporean authorities might be relatively tolerant of some appreciation of the local dollar against the euro given that inflation in Singapore remains elevated.
Singapore’s consumer price index rose by a stronger-than-expected 4.9 percent in February from a year earlier, the government said this week.
That is comfortably above the Singaporean authorities’ outlook for 2013 inflation of 3.5 to 4.5 percent, itself due for review in an April policy statement.
There has to be a good possibility the Monetary Authority of Singapore will talk tough on the need to combat inflation in their April statement, which could add to the allure of the Singapore dollar.
While the euro has already lost ground against the Singapore dollar, to around S$1.5950 on Tuesday, it remains significantly above the S$ 1.5478 low seen in November 2012.
That November low might be seen as a target and any short term squeeze bounce to S$1.60 per euro might draw out sellers of the single currency.
— Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own.
