Swissie climbs to record high

The Swiss franc hit record highs versus the euro and the dollar on Thursday, bolstered by its safe-haven status and lower US bond yields in thin year-end trade that exaggerated price swings. The dollar weakened broadly, hitting a seven-week low against the yen and a 28-year low against the Australian dollar as traders took the falls in US bond yields as a cue to sell.
US Treasury prices recovered on Wednesday, pushing yields sharply lower, after a $29 billion auction of seven-year notes drew surprisingly strong demand. The euro continues to smart from concerns over debt financing in the currency bloc's peripheral countries, giving investors cause to seek the relative safety of the Swiss currency.
"The franc is a hedging vehicle for eurozone risk and we need some degree of resolution to concerns about credit risk in the eurozone periphery to stop it grinding higher," said Ray Farris, currency strategist at Credit Suisse. "The dollar is a weak currency and it will continue to weaken against those currencies that aren't actively trying to disqualify themselves from being an alternative to the dollar, which right now includes the Swiss," he said.
The euro fell as low as 1.2398 francs after a Swiss bank targeted an option barrier at 1.2400, before bouncing back to trade at 1.2434, down 0.6 percent on the day. The dollar fell to 0.9371 francs as the euro/Swiss barrier gave way. It was last at 0.9381, sitting with losses of 0.8 percent on the day. Swiss implied volatilities ticked higher with the one-month dollar/Swiss franc trading around 11.80 percent, a level last seen in the middle of November.
The moves came in a thin market with many players sidelined until the new year. "FX trading activity remains highly subdued in the prevailing holiday market, and this cautions against reading too much into the price action," said UBS analysts in a note to clients. The euro climbed to $1.3260 after refusing to break below its 200-day moving average, now at $1.3086, frustrating bearish investors who think Portugal and possibly Spain could be the next to be bailed out in the new year.
Italy placed most of its planned issue of bonds at a tender on Thursday, although it cut the final sales of two papers and was forced to accept broadly higher yields The dollar slipped as low as 81.28 yen in Asia, its lowest in seven weeks and edging closer to a 15-year low of 80.21 yen hit in November. It later recovered to 81.42, still down 0.3 percent on the day. The Australian dollar hit a fresh 28-year high of $1.0198 against the US dollar, though option barriers at $1.0200 prevented further gains as it eased back to $1.0169.