LONDON: The dollar recovered its footing in Europe on Tuesday after sinking to its lowest in a month against the yen amid deepening worries over global growth and an equities sell-off that is gathering pace.
A messy few days on markets - New York shares dived again on Monday - have highlighted flaws in the arguments of those lobbying for a significantly stronger dollar against the euro, yen and other major currencies.
Treasury yields, whose rise has been an important driver of the US currency's meteoric gains since July, have fallen as investors sought a safe haven for money pulled out of company shares.
In contrast, concern that poor or non-existent growth will worsen the debt problems of Italy and other southern European states has raised yields and made government bonds there look more attractive. The dollar index fell as much as 1 percent in US trading on Monday.
"It's a bit messy this morning, but to characterise it as risk off would probably be the best way of putting it," said Simon Derrick, head of strategy at Bank of New York Mellon in London.
"Clearly there is downward pressure on yields in a lot of places. The irony is that a lot of the bond spreads are moving out in favour of the euro."
Initial moves in Europe were more positive for the dollar. It was up 0.3 percent respectively 107.180 yen and 0.9521 Swiss francs, but still well down on levels seen at the end of European trading a day earlier. Against the euro, buyers coming in for the dollar pushed the single currency half a percent lower. Dealers said large option expiries would keep trade at around $1.27. The euro was worth $1.2694 in early European deals.
POOR DATA
Sterling took another hit overnight from an unexpected fall in the BRC indicator of retail sales, down 2.1 percent year on year compared with expectations of a 1.0 percent rise.
Concern over growth has already driven back expectations for a rise in UK interest rates well into next year. Some analysts who only weeks ago were talking up a rise next month are now admitting it may not come until the second half of next year.
Inflation numbers later on Tuesday are expected to show another fall, further undermining the case for any tightening of monetary conditions.
"We and the market consensus forecast UK inflation to drop to 1.4 percent in September, likely supporting the market view that the first BoE rate hike will not occur until August 2015," Barclays analysts said in a morning note.
"Despite softer inflation prints, we continue to see merits in an earlier BoE rate hike."
Sweden's crown was another to suffer, falling 0.7 percent to 9.1374 per euro after inflation confounded expectations to sink deeper into negative territory at -0.4 percent year-on-year.
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