By Bradley Davis Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)–The dollar and yen posted broad gains Tuesday as investors shunned assets closely tied to growth after disappointing economic data led to concern the global recovery could be losing steam.
The safe-haven yen benefited most from investors unwinding bets on higher-yielding assets, with the euro plummeting to its lowest level against the Japanese currency since November 2001. Investors also ditched the Australian and New Zealand dollars, whose commodity-backed economies are closely tied to global growth. Both dropped more than 2% against the greenback.
“Fear, fear and more fear has driven” investors out of riskier assets, said Dan Cook, senior market analyst at IG Markets in Chicago.
News that an indicator of Chinese growth was not as strong as originally reported sparked initial worry over global growth prospects after a private group issued a correction to its data. A steep decline in U.S. consumer confidence kept investor sentiment poor.
“The latest string of data that we’ve seen out of most major economies, particularly in the U.S., has pointed to a notable loss of momentum in the recovery,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. That has benefited the dollar, yen and Swiss franc, which soared Tuesday to a record high against the euro.
Late Tuesday, the euro was at $1.2196 from $1.2276 late Monday, according to EBS via CQG. The dollar was at Y88.54 from Y89.41, while the euro was at Y107.97 from Y109.78. The U.K. pound was at $1.5074 from $1.5105. The dollar was at CHF1.0808 from CHF1.0872.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 86.105 from 85.701.
To see the euro’s performance against the yen, please see:
http://dowjoneswebservices.com/chart/view/4197
The flight to safety was reflected across markets, with 10-year U.S. Treasury yields dropping below 3% to the lowest level since April 2009 and stocks slumping. The Dow Jones Industrial Average was down more than 2.5% by late afternoon.
The global flight to safety began with a correction to the Conference Board’s leading economic indicator for China. The private research group said Chinese leading indicator rose only 0.3% in April, correcting a previous reading of a 1.7% increase, and a sharp slowdown from March’s 1.2% rise.
A sharp drop in U.S. consumer confidence in June exacerbated the shift into safe assets. Consumer concerns over the sustainability of economic recovery and the outlook for jobs brought the closely watched indicator’s three-month streak of consecutive gains to an end.
Investors also worried that the euro-zone sovereign debt crisis could spill into the region’s financial sector as the Thursday deadline approached for banks to repay EUR442 billion in 12-month funding. Analysts expect most of the money to be borrowed again through the ECB’s one-week and three-month windows.
As the banks roll over the financing from a one-year term to shorter terms, “the cost these banks pay may add additional stress to the system, and this has investors very nervous,” Cook said.
Souring investor sentiment extended the Swiss franc’s record-breaking rally Tuesday, with the euro sinking below CHF1.32, its lowest level in history.
The euro fell to a low of CHF1.3171, according to EBS via CQG, in a continuation of a recent trend that has brought record lows on an almost daily basis. The Swiss currency has benefited for months from a pickup in growth in Switzerland and the country’s healthy fiscal position, but the move has accelerated since the Swiss National Bank stopped intervening to halt the franc’s rise. The euro has declined by around 10% against the franc since the start of this year.
With the ICE Dollar Index strengthening, Deutsche Bank’s PowerShares U.S. Dollar Index Bearish exchange-traded fund was down 0.44% from late Monday, while its PowerShares U.S. Dollar Index Bullish was up 0.48%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE’s Dollar Index.
-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com
(Katie Martin, Don Curren and Geoffrey T. Smith contributed to this article.)
