FOREX-Dollar droops on strong euro-zone data, Swiss bank rules

Thu Jan 23, 2014 4:23pm EST

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By Michael Connor

NEW YORK, Jan 23 (Reuters) - The dollar dropped more than 1 percent against the euro and the Swiss franc on Thursday, hurt by robust euro-zone economic data and tougher bank capital requirements in Switzerland, which suggest a tightening of monetary conditions there.

The dollar touched a three-week low against the Swiss franc and recorded its biggest single-day slump against the Swiss currency since late May.

The dollar index, which measures the greenback against six major currencies, declined nearly 1 percent even as U.S. economic reports showed only a small rise in weekly jobless claims and U.S. existing home sales rose 1 percent in December after three months of declines.

"U.S. data was upstaged by the economic reports coming out of Europe. Jobs and housing fell short of expectations, while the numbers out of the euro zone topped forecasts," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Purchasing manager indexes rose across the euro zone, led by Germany. The gains fed hopes the bloc is emerging from its long debt crisis.

The Swiss franc, which has declined 4 percent against the U.S. dollar in the last six months, got a lift on Thursday from the bank capital changes because they may hint at a tighter monetary policy by the Swiss government, Manimbo said.

"When we are in a world of seemingly endless loosening (by central banks), tightening stands out," Manimbo said.

The dollar also fell sharply against the yen, following a weak Chinese manufacturing number. Soft factory data from China sent Asian stocks lower, losses that persisted in Europe and Wall Street and boosted demand for the safe-haven yen.

In late trading, the euro was at $1.3692 after climbing as high $1.3698, matching a high set on Jan 14.

"With the market of the view that the European Central Bank is going to be conservative when it comes to monetary policy easing, strong manufacturing data just pushes further back the possibility of any unconventional policy, which tends to lift the euro," said Shahab Jalinoos, currency strategist at UBS in Stamford, Connecticut.

The dollar was down 1.6 percent against the Swiss franc to 0.897 franc. It fell as low as 0.8964 franc. The euro was 0.5 percent lower at 1.2288 francs.

In making its policy change, the Swiss government cited "a considerable risk for the stable development of the economy" driven by strong growth in mortgage loans and residential property prices.

"This clearly shows the (Swiss National Bank) is on a path where it can get more restrictive," said Ulrich Leuchtmann, head of currency research at Commerzbank in Frankfurt.

"It limits the upside potential for euro-Swiss franc," he added. "I don't think they'll abandon the 1.20 (per euro cap on the franc's value) but there will be enough speculation in the market about how long it can continue."

Against the yen, the dollar in late trading was off 1.3 percent at 103.13 yen. The yen drew safe-haven bids after China's flash Markit/HSBC PMI index fell to 49.6 in January from December's 50.5, suggesting a mild slowdown at the end of 2013 has continued into the new year.

Against commodity currencies, the U.S. dollar fared better.

Comments from the Bank of Canada, which said currency depreciation should help exports, knocked the Canadian dollar to a 4-1/2-year low. The U.S. dollar was last 0.2 percent higher at C$1.1106.

The Australian dollar, meanwhile, tumbled to a 3-1/2-year low, weighed by the weak Chinese data. It was last at US$0.876, down 1 percent.

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