The dollar fell broadly on Tuesday, hitting an all-time low against the Swiss franc, which was lifted by corporate buying, and a six-and-a-half week low versus the yen, while the euro recovered after recent weakness. The Swiss franc was the biggest gainer among major currencies, with traders citing year-end buying by Swiss corporates.
Moves were exaggerated in very thin post-Christmas trade, with UK markets closed for a public holiday, they said. The euro also jumped against the dollar after stop-loss orders were triggered at key chart points around $1.32. It rose to $1.3274, its highest in more than a week and extending its recovery from last week's three-week low of $1.3055.
"There will be some year-end positioning, but markets are very thin which is why we are seeing quite strong movements," said Youna Park, Commerzbank currency strategist in Frankfurt. The euro was last up 0.8 percent at $1.3262.
Its next target is $1.3278, a 50 percent retracement of its fall earlier this month from $1.3500 to $1.3055, and then around $1.3330-35, which includes a 61.8 percent retracement of the same decline as well as the pair's peak in August. "Essentially the euro is rising on short-covering. I think we'll need to watch the market a bit more to see how investors plan to allocate their money after Christmas and in the new year," said Estuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp in Tokyo.
The euro also gained against sterling, rising 0.6 percent to a five-week high of 85.93 pence, with the British currency still hampered by concerns that planned harsh austerity measures will dampen an already fragile UK economic recovery. Many in the market expect to see more euro weakness in the new year, however, due to worries some eurozone countries such as Spain and Portugal may need rescue programmes, tracking a path trodden by Greece and Ireland.
Year-end flows were broadly negative for the dollar, which lost close to 1 percent against a basket of currencies to 79.596, its lowest in 11 days, to take it below its 100-day moving average around 79.808. The dollar fell around one and a half percent against the Swiss franc to a low of 0.9439 francs. The euro also lost more than 1 percent to hit a low of 1.2495 francs, near an all-time low of 1.2435.
"Swiss franc buying is from local pension funds and corporates. Amounts are big and could be end-of-year flows," a London-based trader said. The Swiss franc has gained broadly recently as investors seek a safe-haven alternative to the euro, with sentiment towards the single currency dented by debt problems in peripheral eurozone countries.
The latest positioning data showed speculators increased bets against the euro in the week ending December 21, while they trimmed bets against the US dollar and boosted long positions in the Swiss franc. Sentiment towards the euro remained fragile and many traders think it could retest its November 30 low against the dollar of $1.2969 once it breaks out of its recent range.
"The euro is oscillating in thin volumes, no new news is expected on the eurozone periphery and it would take a strong driver to pull the euro out of its $1.31-$1.33 range," said Stephan Maier, currency strategist at Unicredit in Milan. Euro bears had been frustrated by the currency's firm support for more than a week at its 200-day moving average just below $1.31 and were giving up their positions for now.
The dollar also dropped to a 6-1/2 week low around 81.84 yen, according to Reuters data, pressured by offers from Japanese exporters, many of whom will be away later this week for the year-end and New Year holidays. The dollar slipped below key support at its 55-day moving average around 82.59 yen and at 82.40 yen, around the bottom of a daily ichimoku cloud. Broad rises in commodity prices helped buoy the Australian dollar to a high of $1.0150, its strongest since November 11 and close to a 28-year high of $1.0182.