DBS sees euro weakening further against Singdollar

Monetary policy easing in Singapore has been milder than in euro zone, it notes

The euro was trading at 1.4988 Singdollars as of 2:40pm on Nov 14, 2019.
The euro was trading at 1.4988 Singdollars as of 2:40pm on Nov 14, 2019.PHOTO: REUTERS

The euro (EUR) is expected to keep weakening against the Singapore dollar (SGD), according to a research note by DBS Bank yesterday.

This comes as Europe's economic powerhouse Germany reported preliminary data yesterday showing that it only narrowly dodged a technical recession with 0.1 per cent growth in the third quarter.

Despite this, optimism remained low. German Economy Minister Peter Altmaier told ARD public television: "We do not have a technical recession, but the growth numbers are still too weak."

A technical recession is defined by two consecutive quarters of economic shrinkage.

DBS strategists Philip Wee and Duncan Tan said in the note, which was released before Germany reported its gross domestic product estimates, that the euro is expected to keep underperforming against the Singdollar.

"Having broken its 1.52 support in September, EUR-SGD is looking to fall below the psychological support at 1.5," they said.

The euro was trading at 1.499 Singdollars as of 6.40pm yesterday, 0.13 per cent down from its close of 1.501 on Wednesday.

The euro has slid 1.2 per cent against the Singdollar in the past month, and by 3.9 per cent so far this year.

Although the likelihood of the European economy falling into recession is "very low", the European Central Bank (ECB) cautioned about an ongoing period of sub-par growth in the bloc.

  • 1.499

    What the euro was trading at against the Singapore dollar as of 6.40pm yesterday, below the psychological support of 1.5.

  • 3.9%

    Fall in the euro against the Singdollar so far this year.

Europe is in a place where growth remains "below potential", said ECB vice-president Luis de Guindos yesterday.

In Germany's case, exports that have been a bedrock of the country's economy for decades are struggling with weaker foreign demand, tariff disputes sparked by US President Donald Trump and business uncertainty linked to Britain's decision to leave the European Union.

The car sector, an important driver of overall growth for Germany, is also having trouble adjusting to stricter regulation following an emissions cheating scandal and a shift away from combustion engines towards electric cars.

Conversely, the Singapore economy grew 0.6 per cent in the third quarter from the previous three months, compared with the 2.7 per cent quarter-on-quarter contraction in the second quarter.

DBS also noted that monetary policy easing in Singapore has been milder than in the euro zone.

"The SGD policy band is still on an appreciation path, despite the slight flattening in its slope last month," said Mr Wee and Mr Tan.

Meanwhile, the ECB has not only pushed its deposit facility rate deeper into negative territory in September, but also restarted its asset purchases programme this month.

"The attractiveness of the SGD over the EUR is best reflected by a positive 10-year Singapore government securities yield just below the ECB's 2 per cent inflation target, versus its negative yielding European Union counterpart," said Mr Wee and Mr Tan.


A version of this article appeared in the print edition of The Straits Times on November 15, 2019, with the headline 'DBS sees euro weakening further against Singdollar'. Print Edition | Subscribe