Dollar jumps on global growth worry

NEW YORK: The dollar gained against the euro for a second straight session on Thursday as fears about global growth had investors rushing to safety following a downgraded outlook from the US Federal Reserve and uncertainty about a resolution of Greece's debt crisis.

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

Greece's new finance minister grappled with European Union and International Monetary Fund officials over gaps in his austerity plans on Thursday.

That suggested Greece's austerity measures scheduled for a vote next week could see rough sailing in parliament, some analysts said.

"Weaker economic data from nearly all parts of the world, namely (the) US, China and Europe, sent investors back into the arms of the low-yielding US dollar," said Kathy Lien, director of currency research at GFT Forex in New York.

The prospect of the end to the Fed's quantitative easing amid continuing uncertainty in Greece has made investors wary of owning the euro versus the dollar, she said.

In early afternoon New York trading, the euro fell 1.2 percent against the dollar to $1.4178, according to Reuters data, up from a global session low of $1.4125 after taking out options barriers at the $1.42 level.

"The dollar's strength was a symptom of a risk-off day and not because people think it has medium-term value," said Sara Zervos, senior vice president and global debt team leader at Oppenheimer Funds in New York.

Zervos co-manages $23 billion in assets at Oppenheimer.

"Bernanke was not very inspiring in terms of giving us hope for a bounce in the economy. And the lack of of any good news out of Europe also helped fuel a bid for US Treasuries."

On Wednesday, the Fed cut its growth outlook for the US economy for both 2011 and 2012.

On Thursday, US data offered a testament to the Fed's outlook. The number of Americans filing new claims for unemployment benefits rose more than expected last week, while sales of new single-family homes fell for the first time in three months in May.

Adding to the gloomy outlook, private-sector activity slowed in China and Europe this month, according to purchasing managers' indexes.

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

"Lower oil prices should be euro-negative as it has been energy and food prices driving euro-zone inflation," said Omer Esiner, senior market analyst at Commonwealth Foreign Exchange, in Washington.

The euro was hit earlier by weak euro-zone flash PMI data, which 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 1.18470 francs. It was last at 1.18920, down 1.3 percent.

"Aside from being sheltered from the European sovereign debt crisis, strong economic data makes Switzerland an attractive country to invest in," GFT Forex's Lien said.

European Central Bank President Jean-Claude Trichet said 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.

In the end, though, Oppenheimer's Zervos said the European Union would come through for Greece.

"No one wants a bank run in Greece. No one wants the financial system to collapse so there would be a lot of regulatory work before any restructuring occurs."

The dollar was last up 0.4 percent at 80.62 yen. The US Dollar Index, which tracks the greenback against six major currencies, was up 1.1 percent at 75.622, with near-term resistance at its 100-day moving average at 75.630.

Copyright Reuters, 2011