Dollar index near six-month high against the Swiss franc

London:

The dollar traded near seven-month highs against a basket of currencies on Thursday after robust data increased optimism the US economy was on a recovery path and could withstand fiscal tightening.

Gains across the board helped push the dollar index up 0.1 per cent on the day to 82.996, not far from Wednesday’s seven-month high of 83.055 hit after US retail sales rose at their fastest clip in five months in February.

The dollar rose 0.2 per cent to a six-month high against the Swiss franc, at 0.95535 francs, after the Swiss National Bank voiced concern about the threats its overvalued currency posed to price stability and the economy.

The SNB said the eurozone crisis could resurface, potentially driving investors back into the safe-haven franc, underlining its determination to maintain its cap on the franc at 1.20 per euro.

The dollar also rose to a four-month high of 5.7968 Norwegian crowns after the country’s central bank pushed back its forecast for when it will next hike interest rates.

“It is all about broad dollar strength. We have seen a breakdown in the correlation that good US data is bad for the dollar,” said Peter Kinsella, currency strategist at Commerzbank.

He noted that rising 10-year US treasury yields could signal further dollar gains.

The improving US economic picture revive talk that the Federal Reserve might pare back its monetary policy support.

Some strategists said this was unlikely, but that the string of better-than-expected US data signalled the resilience of the economy to the ‘fiscal cliff’ comprising tax hikes in January and spending cuts from March.

In contrast, dismal economic data out of the euro zone, coupled with political uncertainty in Italy and a likely bailout for Cyprus, kept the outlook for the euro bleak.

The euro was last at $1.2951, down 0.1 per cent and close to a three-month low of $1.2923 hit on Wednesday. Options expiries at $1.2995 and $1.2950 would likely keep it pinned at these levels.

It has shed around 6 percent from a peak of $1.3711 set early last month. Support is seen around $1.2906, a level representing the 76.4 per cent retracement of its November-February rally.

Some strategists said the euro was unlikely to see steep falls as buyers would emerge on dips. “We favour buying dips to the low $1.29s, with $1.2910 representing good initial support, and further support at the 200-day moving average at $1.2866,” analysts at Lloyds said in a note.

Any positive developments from an EU summit in Brussels this week could support the euro.

The dollar and the euro both resumed their uptrend against the yen, which had a short-lived reprieve earlier this week after some investors and speculators chose to take profits on the Japanese currency’s persistent slide.

The dollar was up 0.3 per cent against the yen at 96.40 yen. Expectations of aggressive policy easing from the Bank of Japan are expected to underpin the dollar/yen, with many traders looking for a retest of the 3 1/2-year high of 96.71 yen hit on Tuesday.

Commerzbank’s Kinsella said 101-102 yen to the dollar was easily within sight.

The euro was up 0.2 percent at 124.75 yen, still some way from the 34-month peak of 127.71 set last month.