Euro and yen rebound vs dollar, Swiss franc gains on inflation jump

The euro and the yen rose on Thursday, reversing some of their recent losses against the U.S. dollar, while the Swiss franc hit a one-month high against the euro after Swiss inflation soared to its highest in 14-years.

The dollar had risen to a three-week high versus the Japanese yen and rallied versus the euro after an overnight advance in Treasury yields. But by the European open momentum in the U.S. currency had fizzled along with a fall in U.S. yields. Trading on Thursday is quieter with London markets shut for a UK holiday.

By 1115 GMT, the dollar was down 0.4% against a basket of other major currencies, while the euro climbed 0.4% to as high as $1.0696, following two days of losses. The yen erased its early weakness and was last at 129.74 yen per dollar, up on the day.

Data this week, stronger than expected in the United States, has reaffirmed that the U.S. economy is likely to hold up better than rivals even as the global economy slows.

“Robust U.S. data and an ensuing extinguishing of hopes that the Fed would need to ease hiking expectations were behind the U.S. Dollar rally,” said Jeffrey Halley, an analyst, describing this week’s European economic data by contrast as “soggy”.

But a record euro zone inflation reading this week adds to pressure on the European Central Bank, which meets next week to discuss policy, to act to tame price growth even if that means weakening a slowing economy.

The Swiss franc gained 0.3% to 1.022 francs per euro, a one-month high, after Swiss prices increased by their highest level in 14 years during May. But it later gave up gains to trade flat at 1.0263

The 2.9% reading may look modest versus the 8%-plus numbers in the euro zone and Britain, but Switzerland is known as a country with historically low inflation so it will further pressure the Swiss National Bank (SNB) to address rising prices.

The franc had broken parity with the euro in March as traders bet the ultra-dovish SNB would be forced to tighten and less inclined to fight a strengthening franc.

Against the dollar the franc gained 0.5% to 0.9576, a two-day high.

ANOTHER RATE HIKE

The Canadian dollar was little changed at C$1.2646 after the Bank of Canada on Wednesday, as expected, hiked rates by 50 basis points and signalled more aggressive tightening to come.

Australia’s dollar rallied 0.3% and sterling 0.6%, both helped by improved investor sentiment across asset classes.

Despite Thursday’s fall, many analysts still see the U.S. dollar outperforming, especially if economic data supports a further rebound in U.S. Treasury yields.

The U.S. currency’s rally overnight was led by the U.S. 10-year yield hitting a two-week high of 2.951% on Wednesday, after data showed U.S. manufacturing activity had picked up in May as demand for goods remained strong.

Traders are now looking to more U.S. employment data due later Thursday and to Friday’s U.S. payroll numbers.

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