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The euro edged closer to a key resistance against the dollar on Friday, supported by more inflation-fighting rhetoric from the European Central Bank, while the Swiss franc touched a new peak on fears the unrest in Libya may spread to other oil producers.
The dollar's fall, however, was tempered somewhat after oil prices came off of 2-½ year highs, and market players said the U.S. currency could regain ground in the near-term if short dollar positions against the Swiss franc are unwound.
"While in Europe there is talk of monetary tightening due to inflationary pressures, rises in oil prices are seen as negative for the U.S. economy," said Koji Fukaya, chief FX strategist at Credit Suisse. "Yield differentials have been moving against the dollar," he added.
Higher oil prices are seen as having a bigger impact on the U.S. economy given it's reliance on consumer spending as a source of growth.
Lending support to the euro were more hawkish comments from European officials. ECB policymaker Axel Weber said the only direction for interest rates to go is up.
Some traders said the euro was likely to be supported until an ECB policy meeting next week and could rise above the February peak of $1.3862.
The dollar hit a record low of 0.9229 Swiss francs on Friday.
"Among the currencies typically regarded as safe havens, namely the dollar, yen and Swiss franc, the Swiss franc may be the currency that is closest to seeing its interest rates rise," said Credit Suisse's Fukaya, referring to the potential for monetary tightening by Switzerland's central bank.
But with many market players now probably long on the Swiss franc, the currency may face some long liquidation, especially if oil prices stabilise, market players said.
Meanwhile, today's focus is on revised US GDP data for Q4 at 13:30 GMT. At 14:55 US Michigan sentiment index for February will come.
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