Dollar drops but respite in sight if economy dims

The US dollar plumbed a record low against the yen and weakened against the euro on Friday, but respite may be in sight for the greenback if the global economic landscape gets gloomier and feeds a safe-haven bid. The euro has gained about 0.3 percent against the dollar so far in August while the greenback has lost around 1.2 percent versus the yen.
--- Dollar/yen plunges to record low
--- Market eyes Fed Chairman Bernanke speech next week
--- Currency speculators increased bets against dollar
--- Bank funding concerns rise, seen positive for dollar
The dollar fell against the yen on Friday by a Wall Street Journal report cited Japan's top currency official saying Japanese authorities do not plan to intervene often. The dollar smashed through its previous record low of 76.25 set in March to fall below 76 yen on trading platform EBS. The dollar later rebounded to trade 0.1 percent lower at 76.48 yen, marking a 5.8 percent loss so far this year.
Growing volatility in global markets has raised investors' appetite for the traditional safe-haven currencies: the yen and Swiss franc. But there has been diminishing volatility in the yen, with its daily price action narrowing. "That speaks to the ongoing worries over the situation and isn't something the Bank of Japan on its own can resolve by a wave of intervention," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut.
Investors are awaiting Federal Reserve Chairman Ben Bernanke's speech on August 26 in Jackson Hole, Wyoming, for hints on how policymakers plan to handle the turmoil in financial markets. The Fed's annual Jackson Hole meeting last year was when the Fed hinted at plans for a second round of quantitative easing, which sent the dollar on a downward trek.
Didi Weinblatt, vice president of mutual fund portfolios at USAA Investments in San Antonio, Texas, was pessimistic about any efforts to stimulate the economy. "There is really not much more the Fed can do because interest rates are already as low as they can get," she said. "There is a lot of nervousness, some of which is coming from Europe and I do not see any good solutions."
Weinblatt, who oversees about $4 billion in assets, said she has been eyeing purchasing high quality, high yield corporate bonds, but said US Treasuries are too expensive. "Whatever happens, the US dollar should remain supported by the fact that there is really no alternative to its liquidity and safety," she said. Next week's US economic calendar is on the light side, with the highlight likely to be the second estimate of second-quarter gross domestic product on Friday.
Bill Gross, co-chief investment officer of Pacific Investment Management Co, operator of the world's largest bond fund, said the rally in Treasury yields to 60-year lows reflects a high probability of recession in the United States. In late afternoon New York trading, the euro was up 0.4 percent against the dollar on the day at $1.4392.
The euro was also boosted by market chatter that the European Central Bank was buying peripheral bonds. Currency speculators increased bets against the US dollar, according to data from the Commodity Futures Trading Commission released on Friday. The Swiss franc also rose on Friday, although gains were capped by speculation that Swiss authorities will step in again to rein in the currency.
The dollar was last down 1 percent at 0.7856 franc. The euro was down 0.6 percent against the Swiss currency at 1.1308 francs, having earlier fallen roughly 1 percent in choppy trade. Many analysts expect the dollar, which has also struggled due to US fiscal problems, will be supported on the view that demand for the greenback will rise if signs grow that financial institutions may be facing funding problems.