The euro hovered near a four-month high against the dollar on Thursday on expectations the European Central Bank will move towards an eventual rate hike, though the currency faces a near-term risk of profit-taking. The Swiss franc, traditionally sought in times of heightened geopolitical tension, fell after news network Al Jazeera said Libyan leader Muammar Gaddafi and the president of the Arab League had agreed to a peace plan from Venezuela's president, Hugo Chavez, to end the crisis in Libya.
The euro rose 0.3 percent against the Swiss franc to 1.2843, while the dollar edged up 0.3 percent to 0.9260 franc, pulling away from a record low of 0.9202 hit on EBS on Wednesday. The euro inched up 0.1 percent against the dollar to $1.3874, hovering near a four-month peak of $1.3890 hit on trading platform EBS on Wednesday. Some traders said there is a risk the euro could slip after an ECB meeting on Thursday, since many market players are already counting on the central bank to send strong signals that it will raise rates to counter inflation.
Investors have pushed the euro up about 3 percent from a low hit on February 14 in anticipation that ECB chief Jean-Claude Trichet will sharpen the central bank's anti-inflation rhetoric as oil prices continue to soar. Traders also took a cue from that fact that the dollar had a negative correlation with oil prices when oil prices jumped in 2007-2008.
The dollar index was steady on the day at 76.670, near a four-month low of 76.529 hit on Wednesday. The dollar now sits near a trendline connecting its 2008 record low and its 2009 low. Another, and perhaps more crucial, trendline support connecting the record low for the dollar index and its 2010 low lies at the 76.15-25 area. The US currency also hit a one-month low of 81.57 yen on Wednesday, though thick bids around 81.50 yen, possibly option-related, helped to push it back to 81.89 yen, little changed from late US trading on Wednesday.