The dollar and yen rose on Wednesday as worries that a slowing US economy may stall global growth fuelled a bid for currencies seen as safe havens. Adding to growth concerns was persistent uncertainty surrounding the resolution of Greece's debt crisis.
A report by the European Union, European Central Bank and International Monetary Fund obtained by Reuters on Wednesday indicated that the next disbursement of Greek aid cannot take place until it corrects under-financing in the country's adjustment program. As a result, the euro slumped, commodity currencies fell and the yen rose as high as 79.693 per dollar, its strongest since May 5. Investors unwound trades financed by borrowing yen at low interest rates as fears grew that slower global growth would hurt higher-yielding assets.
The same dynamics lifted the dollar against the euro and high-yielding currencies such as the Australian dollar, traders said. Low US interest rates make the dollar, like the yen, a popular funding currency. Data last week showing US hiring slowed sharply in May stoked anxiety about the global outlook. Investors grew more risk-averse after Federal Reserve Chairman Ben Bernanke said late Tuesday the recovery remained fragile. The ICE dollar index, a measure of its value against six major currencies, rose 0.6 percent to 73.955.
The yen rose against both the dollar and euro, with the greenback falling to a one-month trough at 79.693 yen on trading platform EBS. The dollar was last down 0.2 percent at 79.890 yen. Traders said losses accelerated after a series of automatic sell orders were triggered on the greenback's drop below 80 yen. More "stop-loss" barriers were said to be below 79.50.
The euro fell 1.0 percent to 116.411 yen and was off 0.8 percent at $1.45683, hurt by an unexpected 0.6 percent decline in German industrial output. The commodity-sensitive Australian dollar shed 0.9 percent to US $1.0611, while the greenback rose 0.5 percent against the Canadian dollar to C$0.9792.
A warning by Fitch Ratings that it could downgrade America's credit rating if the US government fails to raise its legal borrowing limit and misses some coupon payments had little impact on the dollar. But it did highlight the country's mounting fiscal problems, which could have a long-term impact on the greenback. Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, said the "market is leaning toward expecting the debt ceiling will be raised before the US defaults. We view default as a very limited probability." He called Europe's debt crisis more troubling, saying it remained unclear whether Greece would adopt the new austerity measures needed to secure a second bailout aimed at giving it more time to repay its debt.