The dollar surged the most in two months against the euro after the Federal Reserve yesterday said economic growth had slowed, fanning concerns that the global recovery won’t be sustained. The yen strengthened to the most since July 1995 versus the dollar after a report showed Chinese industrial output grew at the slowest pace in 11 months, spurring demand for safer assets. Japan’s currency and the dollar remained higher against all of their major counterparts as data showed the trade deficit in the U.S. unexpectedly widened in June to the highest level since October 2008. “What we’re seeing now is the market taking a negative view of risk following the FOMC decision,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., world’s largest custodial bank, with more than $20 trillion in assets under administration. “With the stock market down, risk is off, which is positive for the dollar.” The greenback strengthened 1.2 percent to $1.3018 per euro at 8:41 a.m. in New York. It gained as much as 1.4 percent, the most on an intraday basis since June 4. The yen appreciated 1.8 percent to 110.58 per euro from 112.58 yesterday. The Japanese currency advanced to 84.93 per dollar, from 85.44, after climbing to 84.73 yen, the strongest level since July 5, 1995. The Stoxx Europe 600 Index tumbled 1.3 percent and futures on the Standard & Poor’s 500 Index dropped 1.4 percent. Policy Statement The Federal Open Market Committee said in its policy statement yesterday that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.” The central bank left the overnight interbank lending rate target in a range of zero to 0.25 percent, where it’s been since December 2008. It also directed the New York Fed’s trading desk to reinvest what economists estimate will be $15 billion to $20 billion a month in maturing agency and mortgage-backed securities back into U.S. Treasuries. “The Fed is clearly concerned about U.S. growth and the market is possibly thinking that the Fed knows something that it does not,” Raghav Subbarao, a foreign-exchange strategist for Barclays Plc in London, wrote in a research report today. “We do not buy into the decoupling story and slower U.S. growth should lead to dollar strength against most risky currencies.” The European Central Bank lent commercial banks dollar funds for the first time since May 26 as market tension rose. The ECB allotted $430 million in a 7-day refinancing operation at a fixed 1.18 percent, the Frankfurt-based central bank said in a statement today. Pound Drops The pound declined against the greenback for a third day as the Bank of England said inflation will be at about 1.5 percent in two years, lower than the central bank’s 2 percent goal. Economic growth will probably peak at a 3 percent annual pace instead of the 3.6 percent rate forecast in May. Sterling fell 0.8 percent to $1.5728. “The overall outlook is weaker than that presented in the May inflation report,” Bank of England Governor Mervyn King said at a press conference in London. He cited the “persistence of tight credit conditions” and planned budget cuts as risks to growth. A U.K. consumer confidence index slumped 7 points to 56 in July, the lowest since April 2009, Nationwide Building Society said in an e-mailed statement. Japan’s machinery orders, an indicator of business investment in three to six months, rose 1.6 percent in June, the Cabinet Office said, less than the 5.4 percent gain forecast by economists surveyed by Bloomberg News. China said factory output, retail sales and new lending for investment in fixed assets all slowed, adding to evidence growth is ebbing. To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net;

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