Euro at two-month high

The euro rose to a two-month high against the Swiss franc and the dollar also firmed against the franc on Friday, after the Swiss National Bank said it was intervening in the face of a growing risk of deflation. The Swiss central bank cut rates on Thursday and said it was implementing a decision to buy foreign currencies, driving the euro up more than 3 percent and the dollar up more than 2.5 percent against the franc.
Traders said the central bank then sold francs, making it the first major central bank in the global economic crisis to use buying foreign currencies as a way to fight deflation and raising the question whether other major economies, notably Japan, would follow suit.
However, Masahiro Sato, joint general manager of the treasury division at Mizuho Trust & Banking Co, said that while smaller economies may feel pressure to weaken their currencies the same would not apply to Japan, the worlds second-largest economy and a major global exporter.
"Competitive currency devaluation is not likely in Japan now because the risks of sparking trade friction are too great. The Swiss can get away with this because of the relatively small size of their economy and the limited role they play in the global economy," Sato said.
"A weaker currency is not necessarily a cure-all, because it can fuel capital flight. Japan certainly doesnt want to take on that risk. Japans homework (task) from the G7 is fiscal stimulus, so it should focus on that."
Japanese authorities have not intervened in the foreign exchange market since March 2004 after a 15-month, 35 trillion yen ($359 billion) selling spree aimed at preventing a strong yen from snuffing out an economic recovery. The euro gained 0.4 percent to 1.5364 francs after rising as high as 1.5400 on trading platform EBS, its highest level in more than two months. The franc slipped to 82.01 yen, although it was above Thursdays two-week trough of 81.30 yen.
One trader said it was unclear if the SNB also sold yen for francs on Thursday but it was unlikely, and even if it had it would only have been a small amount. The dollar also gained to 1.1918 francs, below Thursdays three-month peak of 1.1969 on EBS. Other currency pairs were steady although the yen rose in early trade, with one analyst saying there may have been some repatriation into Japan ahead of the fiscal year-end on March 31.
The dollar was steady at 97.67 yen. It hit a four-month peak of 99.69 yen this month after strengthening from a 13-year low of 87.10 yen in January, but failed to climb above 100 yen as many were expecting. The dollar index has also fallen from a three-year high after shying at a technical level at 89.90. The loss of momentum has seen it drop below an accelerated uptrend from a December low. The euro was steady at 126.06 yen after briefly touching a two-month high at 126.57. The euro slipped 0.1 percent to $1.2896, after gaining nearly 0.8 percent on Thursday.