MW: Dollar gains vs. most rivals, but falls against yen
Japanese yen climbs, British pound slumps after downbeat data
NEW YORK (MarketWatch) -- The U.S. dollar rose against other major currencies Monday, but fell against the Japanese yen and the Swiss franc, as investors hunted for safety amid downbeat economic data throughout the world.
The dollar index , which tracks the performance of the dollar against other major currencies, was up 0.4% to 87.08.
The dollar fell 1.5% to 94.10 yen, while the euro fell 0.7% to $1.2611.
The yen frequently rises when risk appetite falls, as traders buy back low-yielding currencies and pare their bets against higher-yielding ones. The Swiss franc, another low-yielding currency, also rose on Monday.
The moves came after manufacturing gauges in China, the euro zone and Britain each showed significant drops, with the Chinese and British gauge dropping to record lows.
"At the start of December, the relationship between the low-yielding yen, Swiss franc and U.S. dollar has tightened again due to economic weakness," said currency strategists at Brown Brothers Harriman.
"Today's dreadful economic data from China to Germany, the U.K. and Sweden and evidence of a further deterioration in U.S. data today, are helping to fuel talk of more aggressive policy action ahead of this week's central bank meetings," they said in a research note.
The European Central Bank and the Bank of England are expected to cut interest rates further at their policy meetings on Thursday.
A gauge of China's manufacturing activity in November, as compiled by brokerage CLSA Asia-Pacific Markets, marked the sharpest drop in the history of the survey, which began in 2004. The Purchasing Managers Index fell to 40.9 in November, from 45.2 in the preceding month, its fourth straight monthly decline. See related story.
Unlike the U.S. and European data, a Chinese PMI below 50 doesn't indicate economic contraction, though it does indicate slowing growth in the key emerging-markets economy.
"With the U.S., Europe and Japan being in recession, Chinese production is being hurt by diminishing export demand," said analysts at Sarasin.
The U.K. and euro-area PMI also hit record lows, with the euro-area PMI falling to 35.6 in November from 41.1 in October and the U.K. PMI falling to 34.4 from 40.7 in October.
British pound falls
Sterling dropped 2.6% to $1.4976, and the euro rose 2% to 84.15 pence.
Sterling also dropped as European Union President Jose Manuel Barroso said in a French radio station interview that U.K. officials "who matter" were considering joining the euro.
Barroso said that while a majority in the U.K. are opposed to the idea, "people who count in the United Kingdom are in the process of thinking about it."
"While the Barroso comment might dampen near-term sterling volatility against the euro, we see the U.K. not getting into the straightjacket of the euro any time soon," said strategists at BNP Paribas.
Also out on Monday will be the Institute of Supply Manufacturing gauge on manufacturing in November, which also is expected to slump.
Federal Reserve Chairman Ben Bernanke is speaking on the economic outlook at a Dallas Fed conference, and Treasury Secretary Henry Paulson is due to give an update on the U.S. economy and markets.
