FOREX-Swiss franc buoyed; dollar falls with U.S. yields

* Swiss franc climbs to record high versus euro and dollar

* Dollar weakens broadly on pullback in U.S. yields

* Moves coming in thin year-end trade

(Changes dateline, adds quote, previous TOKYO)

By Neal Armstrong

LONDON, Dec 30 (BestGrowthStock) – The Swiss franc hit record highs
versus the euro and the dollar on Thursday, underpinned by its
safe haven status and lower U.S. bond yields, though traders
cautioned that the move was coming in thin year-end trade.

The dollar weakened broadly, hitting a seven-week low
against the yen and a 28-year low against the Australian
currency as traders took falls in U.S. bond yields as a cue to
sell.

U.S. Treasury prices recovered on Wednesday, pushing yields
sharply lower, after a $29 billion auction of seven-year notes
drew surprisingly strong demand a day after a weak five-year
sale. [ID:nN29284358]

As the euro, a natural alternative for the dollar, is
smarting from concerns over debt financing of the currency
bloc’s peripheral countries, investors are looking for
alternatives.

“The franc is a hedging vehicle for euro zone risk and we
need some degree of resolution to concerns about credit risk in
the euro zone periphery to stop it grinding higher.” said Ray
Farris, currency strategist at Credit Suisse.

“The dollar is a weak currency and it will continue to
weaken against those currencies that aren’t actively trying to
disqualify themselves from being an alternative to the dollar,
which right now includes the Swiss,” he said.

The euro fell (Read more about the trembling euro. ) as low as 1.2398 francs (EURCHF=: ) after a
Swiss bank targeted an option barrier at 1.2400. The dollar fell
to 0.9371 francs (CHF=: ) as the euro/Swiss barrier gave way.

But the moves came in a thin market with many players
sidelined until the new year.

“FX trading activity remains highly subdued in the
prevailing holiday market, and this cautions against reading too
much into the price action,” said UBS analysts in a note to
clients.

The euro extended gains to $1.3259 (EUR=: ) after a stubborn
refusal to break below its 200-day moving average, now at
$1.3086, frustrating bearish investors who think Spain and
Portugal could be the next to be bailed out in the new year.

DOLLAR/YEN SLIDES

The dollar slipped as low as 81.28 yen (JPY=: ), its lowest in
seven weeks and edging closer to a 15-year low of 80.21 yen hit
in November. Traders cited Japanese yen repatriation flows at
the Tokyo fixing, adding importers were the main buyers of the
dollar around the lows.

Traders said a rise in the Chinese yuan after China’s
interest rate hike last Saturday was supporting Asian
currencies, including the yen.

The yuan (CNY=CFXS: ) hit a record high against the dollar on
Thursday after the Chinese central bank set the yuan mid-point
(CNY=SAEC: ) versus the dollar at a record high.

“There will be speculation that China may engineer a higher
yuan ahead of Chinese President Hu Jintao’s state visit to the
United States next month,” said Keiji Matsumoto, a strategist at
Nikko Cordial Securities.

Hu will visit Washington on Jan. 19. [ID:nTOE6BM01F]

The Australian dollar hit a fresh 28-year high of $1.0198
(AUD=D4: ) against the U.S. dollar, though option barriers at
$1.0200 prevented further gains.

Rising commodity prices have boosted the Aussie and helped
investors shrug off fears that the rise in borrowing costs would
slow China’s economy (Read more about the fastest growing economy.) and thus dampen demand for Australian
exports. London Metal Exchange copper hit a record high.
[MET/L]

(Additional reporting by Hideyuki Sano; Editing by Patrick
Graham)

FOREX-Swiss franc buoyed; dollar falls with U.S. yields