The euro edged closer to a key resistance against the dollar on Friday, supported by more inflation-fighting rhetoric from the European Central Bank, while the Swiss franc touched a new peak on fears the unrest in Libya may spread to other oil producers.
The dollar's fall, however, was tempered somewhat after oil prices came off of 2-1/2 year highs, and market players said the US currency could regain ground in the near-term if short dollar positions against the Swiss franc are unwound. The euro rose 0.2 percent to $1.3828, nearing resistance at $1.3862, a peak reached in early February.
One possible resistance above that lies at $1.3947, the 76.4 percent retracement of the euro's November to January slide. Another is $1.3974, the euro's intraday high on November 9. "While in Europe there is talk of monetary tightening due to inflationary pressures, rises in oil prices are seen as negative for the US economy," said Koji Fukaya, chief FX strategist at Credit Suisse in Tokyo.
"Yield differentials have been moving against the dollar," he added. One trader said the euro was likely to be supported until an ECB policy meeting next week and could rise above the February peak of $1.3862. But further gains may be limited since a lot of debt issued by euro zone peripheral countries is due to mature in April, and could put the focus back on their fiscal woes.
The euro's recent ascent has come not only against the dollar but also against some emerging Asian currencies, in a possible sign of investors shifting out emerging market assets and into developed markets. The euro has climbed 3.4 percent against the Taiwan dollar so far in February and 1.6 percent against the South Korean won. The dollar hit a record low of 0.9229 Swiss francs on trading platform EBS earlier on Friday. After trimming some losses, the dollar it stood at 0.9251, down 0.1 percent from late US trading on Thursday.
The dollar inched up 0.1 percent against the yen to 81.93 yen and the euro rose 0.3 percent to 113.29 yen. A trader for a Japanese bank cited yen-selling against the dollar and other currencies by Japanese importers. The Australian dollar rose 0.4 percent to $1.0131, underpinned by strong gains against its New Zealand counterpart, as investors priced in prospects of a New Zealand rate cut following the deadly earthquake. The Aussie rose to a 10-year high of NZ$1.3509, up about two cents on the week on diverging outlooks for interest rates.
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