Swiss franc buyers are breathing a sigh of relief with the greenback at its strongest in five weeks. Markets suspect Swiss authorities are buying the US currency to weaken the franc and protect the export-driven Alpine economy. Switzerland’s central bank rocked the financial world last month with its surprise decision to untie its currency from the euro which unleashed a powerful rally for the franc. The dollar’s gains against the franc helped it higher against its other main peers. Dovish minutes from the Federal Reserve’s late January meeting weighed on the dollar by suggesting a mid-year rate hike may be premature. The dovish Fed minutes clouded the near-term outlook for the dollar, potentially subjecting unhedged US importers to higher costs for foreign invoices, but its longer run prospects remain bullish on account of the US’s positive fundamentals which still have the Fed on course to boost interest rates this year. The greenback steadied above six-week lows against sterling and neared its strongest in a week against the Canadian dollar. Market liquidity should be lighter and potentially more volatile over the coming week with parts of Asia closed for the Lunar New Year holiday.
Euro
The euro struggled as Greece’s inability to reach a compromise bailout deal with its creditors capped upside for the single currency. Markets remained cautiously hopeful that Greece would eventually hammer out a bailout that does not put as onerous a burden on its economy as the current programme. As long as the spectre of a Greek exit from the euro remains, upside for the euro should stay in shorter supply.
Sterling
Sterling shed a little buoyancy to the greenback after its burst to new six-week highs this week and to six-year peaks for the UK currency on a trade-weighted basis. Dovish Fed minutes saw the interest rate advantage US assets hold over their UK counterpart narrow, supporting the pound. Sterling also got a boost this week from upbeat jobs data that suggested a UK rate hike may not be on such a far off horizon.
US dollar
A decent set of weekly jobless claims figures helped the dollar recover further from Wednesday’s dovish Fed minutes. Another 283,000 of weekly jobless claims highlighted the strengthening trend in the labour market. It bears noting that the minutes from the Fed’s late January meeting took place before the January jobs report which topped forecasts with strong hiring in excess of 250,000. Any attempt by the dollar to revisit recent 11-year highs look a bit trickier with the Fed appearing less likely to hike rates anytime soon amid wariness over low inflation and global uncertainty.