U.K. GDP data pressure pound; Swiss franc seen ripe for correction
By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — A fragile calm in oil markets allowed the U.S. dollar to stabilize Friday, a respite after sliding in response to worries about the potential for supply disruptions due to turmoil in the Middle East and North Africa.
The dollar index (DXY 77.23, +0.18, +0.23%) , which measures the greenback against a basket of six currencies, rose slightly to 77.187, but it remains down around 0.6% on the week.
By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — A fragile calm in oil markets allowed the U.S. dollar to stabilize Friday, a respite after sliding in response to worries about the potential for supply disruptions due to turmoil in the Middle East and North Africa.
The dollar index (DXY 77.23, +0.18, +0.23%) , which measures the greenback against a basket of six currencies, rose slightly to 77.187, but it remains down around 0.6% on the week.
But strategists at UBS say the Swiss currency may be ripe for a correction following its risk-aversion rally, at least against the euro, which rose 0.2% to trade at 1.2804 francs in recent action.
The euro (EURCHF 1.2799, +0.0020, +0.1565%) had traded around CHF1.32 earlier this month before the franc scored across-the-board gains.
While European Central Bank officials appear to be hinting at an eventual interest-rate hike, the Swiss National Bank has maintained “dovish rhetoric,” according to UBS strategist Beat Siegenthaler.
“Unless the tensions spread to some of the larger countries in the Middle East, market jitters may ease, leading investors reversing some of their safe-haven trades, of which long [Swiss franc] has been a key one,” Siegenthaler wrote in a note.
Also, rising oil prices may put further pressure on the European Central Bank to strike an anti-inflation tone, the strategist said. UBS recommended buying the euro/Swiss franc cross at CHF1.2800 with a target of CHF1.3500 and a stop-loss sell order at CHF1.2400.
Meanwhile, the British pound (GBPUSD 1.6095, -0.0040, -0.2479%) , which has fallen in response to rising oil prices, extended its pullback to $1.6085 from $1.6139 on Thursday. The latest retreat came as data showed the British economy contracted more than previously estimated in the final three months of 2010.
The Office for National Statistics said gross domestic product contracted 0.6% versus the third quarter of 2010. Compared to the fourth quarter of 2009, growth was revised down to 1.5% from 1.7%. See Market Pulse on fourth-quarter U.K. GDP.
Data showing weak investment and private spending were particularly troubling, economists said. The figures come as the Bank of England is seen moving toward a rate hike as inflation continues to press above its 2% target.
