DESPITE continued turmoil in the Middle East, concerns over the Irish rescue deal and fears that rising commodity prices could snuff out the global economic recovery, the dollar can’t find a bid. Typically, in times of stress, the greenback rallies as investors seek safety and liquidity. So why is the dollar losing its position as a safe haven attraction?

While the rest of the G4 nations have made serious attempts at curbing their fiscal deficits, US legislators are locked in an ideological war of attrition, squabbling over the funding for various social policy programs while leaving the major defense and social security appropriations largely untouched. The debate has escalated to a point that Republicans now threaten to shut down the US government if they are unable to achieve the budgetary cuts they seek. Such acrimony shakes the confidence of the currency market and it is not surprising that the dollar has ceded its safe haven status to the Swiss franc, which continues to trade near record highs.

The greenback is also under pressure on the interest rate front. When it comes to interest rate hikes amongst the G4 economies, the currency market now has a very clear pecking order. The Bank of England is expected to raise rates first, followed by the European Central Bank. The Federal Reserve, on the other hand, is projected to remain stationary for the rest of the year. With the exception of the Bank of Japan, the only other central bank less likely to raise rates than the Fed is the Swiss National Bank.

That’s why this Friday’s US non-farm payroll (NFP) report is shaping up to be a critical event for the dollar-Swiss franc pair. If US labour data shows marked improvement with NFPs recording a net gain of 200,000 jobs or more, the dollar-franc pairing, which has been pounded mercilessly over the past several weeks, could see a short covering rally. However, if the NFP proves disappointing for the second month in a row, the dollar-franc could slide below the SFr0.9200 level and target the key SFr0.9000 figure as the greenback continues to lose its lustre.