Risk aversion, global recession fears remain positive for dollar By Lisa Twaronite, William L. Watts & Nick Godt, MarketWatch SAN FRANCISCO (MarketWatch) -- The dollar soared against the euro and the British pound Wednesday, pressured by further fund repatriation and expectations the European Central Bank and the Bank of England will move to aggressively cut interest rates in coming months. But the greenback slipped against the yen, which also gained on the pound and euro as another sell-off on Wall Street fanned risk aversion. U.S. stocks ended sharply lower, with the Dow industrials down more than 500 points. See Market Snapshot. "Deleveraging and risk aversion have been the primary catalysts for the strength in the low yielders (U.S. dollar and Japanese Yen), but currency bets gone wrong, repatriation and the fears of weak growth in Europe have also fueled the rally," wrote Kathy Lien, director of currency research at GFT. The yen, which has been the ultimate risk-aversion currency during recent financial turmoil, posted broad gains. "Investors continue to flock to the dollar as speculation mounts that central banks elsewhere will continue with aggressive rate cuts in an attempt to stimulate growth in the near term," said James Hughes, analyst at CMC Markets. The euro dropped to its lowest level against the greenback in almost two years, breaking support at $1.2800 and plunging as far as $1.2743. "The meltdown in currency markets takes a life of its own, reflecting further deleveraging in equity and credit markets," said Ashraf Laidi, chief FX strategist at CMC. Weakness in both the euro and the pound, he said, was intensified by worries about emerging market currencies in Eastern Europe and remarks from Bank of England Gov. Mervyn King, who said the U.K. economy is in recession. The euro recently trimmed losses to change hands at $1.2823, still down sharply from $1.3046 in late North American trade Tuesday. The euro also plunged against the Japanese unit to 124.58 Japanese yen, but had pared losses to 125.51 yen. It was buying 130.73 yen late Tuesday. The pound sterling recently traded at $1.6212, down from $1.6694 late Tuesday. Earlier, it fell to a five-year low of $1.6135. The pound plunged against the Japanese currency to 157.84. It was last buying 158.81, down 5% from Tuesday. The dollar fell to 98.04 yen from 100.38 yen late Tuesday. Earlier Wednesday, the dollar fell as low as 97.22, its lowest level since March. The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, traded at 85.602, up from 84.434 late Tuesday. Late Wednesday, the Reserve Bank of New Zealand cut its official cash rate by one percentage point, to 6.50%, as widely expected. Emerging worries The sharp downward pressure on the euro comes even as signs point to further stabilization of the financial sector. Instead, the focus has turned to prospects for a deep recession, pressuring the euro even though the United States and the Federal Reserve must also wrestle with a steep downturn, traders said.

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