Swissie gains as SNB leaves minimum euro exchange rate unchanged
By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch)—The U.S. dollar rally lost steam Thursday ahead of a raft of economic data, with the currency giving up some recent gains versus the Japanese yen and losing ground to the euro.
The ICE dollar index DXY -0.20% traded at 80.628, from 80.596 in late North American trading on Wednesday.
The dollar index touched its highest level since January on Wednesday, after U.S. Treasury bond yields were pushed out of recent ranges and back to levels not seen since October. The dollar has appeared to shake off a previous relationship that tended to see it lose ground as investor risk appetite rises.
A continued rise in U.S. yields, however, should further support the dollar, said Kit Juckes, head of foreign exchange at Societe Generale, in London.
“Even if long-term views aren’t changed, the dollar is the clear winner” from rising yields, he said, in a note to clients.
Emerging-market forex will correct and the euro/U.S. dollar pair will probably fall through the $1.30 level, he said, adding,”I don’t know why it is defying gravity (again) this morning.”
“Consistent upside surprises have been an important source of U.S. dollar support,” Sue Trinh, senior currency strategist at Royal Bank of Canada, wrote in a note to clients.
Investors are set to digest a large round of economic data Thursday, including initial weekly jobless claims, February producer price inflation and a pair of regional gauges of manufacturing activity.
“With the market now pricing in the first [Federal Reserve interest rate] hike by April 2013 (versus the Fed’s late 2014 guidance), the potential for further U.S. dollar gains on the back of interest rate story seems somewhat limited. However, keep an eye on the U.S. financials, which may serve as another transmission mechanism for U.S. dollar strength,” she added.
The euro EURUSD +0.09% traded at $1.3059, up from $1.3022 in late trading on Wednesday.
The British pound GBPUSD -0.06% fetched $1.5682, up, from $1.5672.
Against the Japanese currency USDJPY -0.16% , the dollar bought 83.45 yen, down from ÂĄ83.76 late Wednesday, a day when the dollar touched an 11-month high against the yen.
“As per usual, the upward pressure on U.S. yields has had a significant follow through in USD/JPY with the latter breaching a key technical target yesterday. That said the pace of the movement in USD/JPY in recent weeks has outdone the movement in interest spreads, confirming that other factors are at play,” said Jane Foley, senior currency strategist at Rabobank International in London.
A previous buildup of long yen positions has “almost certainly” been a factor in the yen’s fall versus the U.S. unit as traders exit bullish bets, she said. A sense that a weaker yen plays into the government’s plan to stimulate growth is also a factor, she said.
Meanwhile, the Swiss franc strengthened slightly versus the euro after the Swiss National Bank, at its quarterly policy meeting, left its minimum euro/Swiss EURCHF -0.26% exchange rate unchanged at 1.20 francs. The SNB imposed the floor last September to halt the rise of the franc.
The euro traded at CHF1.2095 in recent action, down 0.3% from Wednesday.
The stronger franc showed that speculators who had expected the SNB to raise the floor were left disappointed, Foley said. She noted, however, that the SNB left the door open to raising the floor at a later date by warning that the Swissie remains overvalued in their view.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
