US dollar jumps on global growth fears, euro melts

NEW YORK: The dollar advanced on Thursday as heightened concerns about slowing global growth spurred a flight to safety, following a bleak US outlook by Federal Reserve Chairman Ben Bernanke and persistent uncertainty about Greece's debt crisis.

The euro tumbled, hitting record lows against the Swiss franc, and posted steep losses versus the safe-haven dollar after Greek opposition leader Antonis Samaras on Thursday said the only way for Greece to repay its debt was for the government to change its current fiscal policies..

That suggested Greece's austerity measures scheduled for a vote next week could be rejected by parliament, some analysts said.

"Bernanke's cautious outlook and the persistent headwinds to the US economy ... that might linger until year-end, including concerns about Greece, have affected market sentiment," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

The Fed on Wednesday downgraded its growth outlook for the US economy, raised its inflation expectations and held off from signaling a third round of quantitative easing, saying the US recovery should gradually pick up heading into 2012.

On Thursday, the International Energy Agency said it would release 60 million barrels of oil from strategic stockpiles to help the global economy, but the announcement generated little buying for high-yielding currencies.

In early New York trading, the euro fell 1.2 percent against the dollar to $1.41800, taking out options barriers at the $1.42 level.

The euro was earlier hit by weak euro zone flash PMI data that raised concerns over tepid growth outside the core economies of France and Germany.

The single euro-area currency also hit new troughs versus the Swiss franc, falling to 1.18750 francs. It was last at 1.19140, down 1.2 percent.

Further adding to concerns about the euro was a comment from European Central Bank President Jean-Claude Trichet saying the warning lights were flashing red on the euro zone debt crisis, leading some to question whether the ECB will continue with its monetary tightening cycle..

Investors who had been favoring riskier assets on expectations the Fed could flag more quantitative easing cut those positions and pushed the dollar higher. The dollar index, which tracks the greenback against six major currencies, was up 1.1 percent at 75.625, trading near-term resistance at its 100-day moving average at 75.630.

Market players said they were eyeing the June 16 high of 76.020, with many suggesting a break through that level would lead to further gains in coming months.

Sterling slid against the US currency to roughly three-month lows of $1.5956, falling past option barriers at $1.60 after the Bank of England, in contrast to the Fed, on Wednesday raised the prospect of offering more monetary stimulus to revive flagging economic growth.

A Chinese purchasing managers' survey showed factory-sector growth was close to stalling in June, further hurting appetite for riskier investments.

That helped push the Australian dollar, which has strengthened as China's booming growth has boosted demand for Australian commodities, down 0.8 percent at US$1.0480 against the safe-haven greenback, down more than a cent from Wednesday's high.

Copyright Reuters, 2011