Swiss franc keeps day's gains despite worsening deflation as Fed comments halt dollar rally

The Swiss franc traded higher on Friday as the greenback encountered some resistance on dovish remarks by a Fed official; data that revealed increasing deflation risks to the Swiss economy did not affect the franc.

The USD/CHF fell to 1.0164 on Friday from the previous close of 1.0188, moving further off the multi-year high of 1.0218 hit earlier on Thursday.

Consumer prices in Switzerland fell 0.3% from a year earlier in December, after the 0.1% drop in November, data showed on Friday. Prices fell on a monthly basis too, by 0.5%, after the November reading of 0%.

The Swiss unemployment rate released earlier in the day showed the year-on-year rate rising to a ten-month high of 3.4%. Above the February reading of 3.5%, the rate will be at its highest since 2011.

FOMC member Narayana Kocherlakota said raising US interest rates this year would hinder a recovery in inflation, pulling back the USD index from the 12-year high of 92.53 hit on Thursday to as low as 92.13 by 9:00 GMT.

The sharp slide in the euro and the pound has been helping the dollar rally in the recent past, reflected by the 2.4% rally just within the first five days of 2015. The index had broken through the 92.43 mark to hit the over decade high in the previous session.

The market is now waiting for the US jobs report due at 13:30 GMT.

Non-farm job additions may have fallen to 245,000 in December, according to market consensus, from 321,000 in November, but the US unemployment rate is forecast to have fallen to 5.7% from 5.8%, adding to dollar positives.