The dollar edged up on Friday, helped as oil prices retreated from their recent highs on easing concerns about the turmoil in Libya and as investors squared positions ahead of the weekend. However, the euro still hovered near 2011 highs against the US currency, helped by inflation-fighting rhetoric from eurozone policymakers which has added to expectations eurozone rates will rise while US policy remains loose.
A weekly close above the early February high of $1.3862 would leave the euro well placed for further gains towards $1.40, but this level was seen as strong resistance, with traders reporting Asian central bank offers defending an option barrier at $1.3840/50. "The euro has held up fairly well in the context of events in North Africa and this can only be pinned to the hawkish commentary coming from the ECB," said Paul Mackel, currency strategist at HSBC.
The euro was down 0.15 percent on the day at $1.3784. A break past $1.3862 would mark its highest level since early November. Beyond there, resistance lies at $1.3947, the 76.4 percent retracement of a November to January slide. Growing expectations for higher interest rates in the eurozone while policy in the US remains loose have supported the euro, with European Central Bank policymaker Axel Weber saying on Thursday the only direction for rates was up. "The contrasting policy outlooks for Europe and the US have helped the euro and weighed on the dollar, and it wouldn't be surprising to see the euro test the early February highs," said Kit Juckes, currency strategist at Societe Generale.
Against a basket of currencies, the dollar was up 0.15 percent at 77.169, not far from a 3-1/2 month low of 76.881.
The dollar was boosted when oil prices came off 2-1/2 year highs after top exporter Saudi Arabia said it was willing to step in to make up for any shortages resulting from tensions in Libya. The dollar was up 0.3 percent at 0.9291 Swiss francs, having hit a record low of 0.9229 francs in overnight trade. The euro was up 0.1 percent at 1.2800 francs, supported by a buy euro, sell Swiss recommendation from Swiss bank UBS, whose target for the pair was 1.3500. The Canadian dollar rose to a three-year high versus the US dollar at C$0.9797, helped by elevated oil prices and as traders took out an option barrier at C$0.9800.