The Swiss franc edged toward a record high on Wednesday as turmoil in Libya drove investors to seek safety, while the US dollar fell broadly as the greenback appeared to lose its safe-haven lustier. The euro, which for sometime was treated as a risk currency, rose as investors seeking safety shunned the dollar. Expectations that interest rates will rise faster in the eurozone than in the United States helped boost the single currency.
Stocks markets fell world-wide after political violence in Libya sent US oil futures to $100 a barrel, fanning concern about inflation and its impact on the global economy. Against a basket of currencies, the dollar was down 0.5 percent at 77.383, after falling as low as 77.255, a near three-week trough. The euro hit a session peak of $1.3787 on trading platform EBS, with gains accelerating after it took out resistance around $1.3745, the February 9 high. It was last up 0.7 percent to $1.3748. The next key upside target lies at $1.3862, the February high, traders said.
Recent hawkish comments on inflation from European Central Bank officials have raised expectations the ECB would hike interest rates before the Federal Reserve. By contrast, US Fed fund futures have been on the rise since early last week as investors push back the expected timing of the Fed's lifting of interest rates from the current range of zero to 0.25 percent. Also weighing on sentiment about the dollar, analysts said, were growing worries about the country's ballooning budget deficit. The federal government will run out of money for non-essential operations if the Democrats and Republicans fail to agree on funding by the end of next week, which could unsettle financial markets and risk mass government layoffs.
Against the Swiss franc, the dollar fell 0.5 percent to 0.9335, after earlier touching 0.9307, the lowest this year and near the all-time low of 0.9301 set in December. Risk aversion also lifted the yen, although higher oil prices kept a lid on gains, with the Japanese economy vulnerable due to high oil imports. The dollar last traded down 0.3 percent at 82.47 yen.