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The euro and yen rallied Thursday, reversing some recent losses against the U.S. dollar, while the Swiss franc hit its highest level in a month against the euro after Swiss inflation hit a 14-year high.
In Asian trade, the dollar rose to its highest level in three weeks against the Japanese yen after Treasury yields rose overnight. But by the time the European stock market opened, the U.S. currency's momentum had run out of steam. On Thursday, trading was quieter, as London markets were closed for the jubilee bank holiday.
By 8:45 a.m., the dollar was down 0.3 percent against a basket of rivals, while the euro climbed 0.4 percent to $1.0689, after two days of losses. The yen reversed its initial weakness and settled at 129.87 yen per dollar, up slightly on the day.
Currency pairs, from April 4 to May 30
The Swiss Franc Hardens
The Swiss franc gained 0.3 percent to 1.022 francs per euro, its highest level in a month, after Swiss prices hit a 14-year high in May.
The 2.9 percent rate may seem modest compared with rates of more than 8 percent in the euro zone and Britain, but it is remarkable for a country known for its historically low inflation and will put more pressure on the Swiss National Bank (SNB) to cope with rising prices.
The franc broke parity with the euro in March, with traders betting that the ultra-dovish SNB would be forced to tighten policy and be less inclined to fight a strengthening franc.
Against the dollar, the franc gained 0.5 percent to 0.9576, a two-day high.
Canada raises rates again
The Canadian dollar was little changed Thursday at C$1.2657 after the Bank of Canada predictably raised rates Wednesday by 50 basis points and signaled more aggressive tightening ahead. Despite Thursday's drop, many analysts still see the U.S. dollar outperforming, if economic data supports a further rebound in U.S. Treasury yields.
The U.S. currency's overnight rally was led by the U.S. 10-year yield, which hit a two-week high of 2.951% on Wednesday, after data showed U.S. manufacturing activity picked up in May as demand for goods remained strong.
"It's almost a mirror image of what we saw last week, when there was talk of a possible pause in the tightening cycle," said Ray Attrill, head of foreign-exchange strategy at National Australia Bank.
Traders now turn their attention to more U.S. jobs data, which will be released later Thursday, and U.S. payrolls figures, which will be released Friday.
