Thursday February 23, 2006 - 10:44:40 GMT
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INVESTICA Ltd - www.investica.co.uk
Demand for defensive currencies
The Swiss franc was unable to hold gains beyond 1.5575 against the Euro on Wednesday and weakened back towards 1.5620. The Swiss currency also faced a further test of support close to 1.3150 against the US dollar before a recovery to 1.3100. The franc was holding close to 1.3110 in early Europe on Thursday before strengthening to 1.3065 as demand for defensive currencies increased.
Emerging market trends will be watched closely in the short term following some turbulence on Wednesday as a second successive sharp daily drop in the Icelandic krona had a ripple effect on other markets. Any sustained increase in risk aversion would offer significant franc support, although fears eased slightly later on Wednesday. There will also be some concerns that reduced interest in yen selling will increase the attraction of the franc as a funding currency. Overall, however, there is likely to be greater caution over franc selling as there will be a greater reluctance to sell the defensive currencies.
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