MW: Dollar mostly higher as investor seek safe haven
The U.S. dollar was mostly higher versus its major counterparts Thursday, putting renewed pressure on the European single currency and the British pound but slipping versus the Japanese yen.
The U.S. currency extended gains even after a pair of government reports the labor market and housing sector continued to weaken.
"The dollar does seem to be finding some renewed support of late, although with the economic situation deteriorating across the board, this move does seem to be one that is being driven more by fear and the general herd mentality," said James Hughes, a strategist at CMC Markets.
The dollar index , which tracks the dollar against a trade-weighted basket of six major currencies, rose to 85.942 from 85.407 in North American action late Wednesday.
The euro slipped to $1.2944 from 1.3031.
The Labor Department said initial claims for unemployment benefits rose by 62,000 to 589,000 in the week ended Jan. 17. See jobless claims story.
A Commerce Department report showed housing starts fell more than 15% in December to a seasonally adjusted 550,000 pace, the lowest on record. Economists surveyed by MarketWatch expected starts to total 600,000. See housing story.
"The labor and housing market data highlight the seismic challenges that the U.S. economy faces but the dollar continues to benefit from safe haven flows," said Kathy Lien, director of currency research at Global Forex Trading.
The euro also broke a string of losses against the dollar on Wednesday only to come under more pressure in Thursday's action.
The decision by Standard & Poor's on Wednesday to cut Portugal's long-term sovereign credit rating by one notch had little immediate impact on the euro, but served to further underline ideas that the single currency can't be considered a "safe haven," wrote strategists at Commerzbank.
At the same time, that doesn't mean the euro simply falls, they said. Price-sensitive market participants have been tending to favor selling the euro versus the dollar, which could lead to a speedy upside euro correction once the downtrend subsides.
Worries about the U.K. banking sector and the potential for further bailouts continues to weigh on sterling, said economists at Lloyds TSB.
The British pound plunged to around $1.3621 at one point Wednesday, its weakest level versus the dollar since 1985, before rebounding in late trade.
Sterling was back under pressure Wednesday to trade at $1.3781, after rebounding to $1.3977 late Wednesday.
Against the Japanese currency, the dollar slipped to 88.37 yen from 89.26 yen.
The Bank of Japan on Thursday said country will see deflation for the next two fiscal years as the economy shrinks, after revising down its growth forecast and holding interest rates unchanged. See full story.
The BoJ's policy board voted unanimously to keep interest rates at 0.1% Thursday, after cutting them from 0.3% last month. It said a recovery would begin to kick in by the second half of fiscal 2010, ending March 31.
