By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar gained ground against the major currencies on Thursday, extending gains for a fourth day against the euro fears of a global slowdown saw investors abandon equities and other riskier assets to rush into the safe havens of the greenback and the Japanese yen.
The Japanese yen recovered from much deeper losses in the Asian trading session, after officials hinted at intervening in the currency market.
The dollar index (DXY 82.44, +0.15, +0.19%) , a measure of the U.S. unit against a basket of major currencies, rose to 85.501, compared to 82.269 in late North American trading Wednesday.
The euro (EURUSD 1.2850, +0.0005, +0.0389%) declined to $1.2839, down from $1.2889 late Wednesday. The single currency fell as low as $1.2780 earlier, the lowest since July 22.
The yen (USDYEN 85.4200, +0.1500, +0.1759%) , which hit a 15-year high versus the greenback on Wednesday, slipped back after news reports said Japanese Prime Minister Naoto Kan described the yen's recent rally as "rough" and said the recent moves "are a little too rapid." Read about Kan's comments.
Versus the yen, the dollar rose to ¥85.44, up from ¥85.25 Wednesday, when the pair hit an intraday low of ¥84.71 -- its lowest in 15 years.
The British pound (GBPUSD 1.5606, -0.0034, -0.2174%) traded at $1.5606, down from $1.5680.
The dollar took in stride a report from the U.S. Labor Department showing first-time jobless claims unexpectedly increased in the latest week. Read about jobless claims.
Stock markets took the news negatively, selling off further and prompting investors move away from assets considered riskier and towards the relative safety of the greenback.
U.S. stocks opened in the red, with the S&P 500 Index (SPX 1,079, -10.66, -0.98%) down 1.1%.
"The risk aversion in the financial markets has been largely triggered by concerns about U.S. and Chinese growth and unfortunately this morning's jobless claims report did not alleviate any concerns," Kathy Lien, director of currency research at Global Forex Trading. "As long as claims are moving closer and not further away from 500,000, the labor market is light years away from recovery."
Weighing on the euro earlier, the European Union said industrial production in the 16-nation euro zone fell 0.1% in June, falling short of expectations for a 0.5% monthly increase. May data were revised higher, however.
Strong industrial production, particularly in Germany, is expected to drive a pickup euro-zone gross domestic product. E.U. statistics agency Eurostat will release its first estimate of second-quarter GDP on Friday. Read about the euro-zone economic outlook.
Japanese yen
Meanwhile, trading in the yen played off reports that Rintaro Tamaki, the vice finance minister for international affairs, met with Bank of Japan Executive Director Hiroshi Nakoso to discuss the currency's recent rise. Tamaki told reporters after the meeting that he and Nakoso "exchanged opinions" but provided no details of the discussions.
The dollar has lost 3.4% against the yen this quarter, and has dropped for four straight months. The U.S. unit has lost 8.2% this year against the yen. A stronger yen makes exports more expensive for Japanese companies.
"Recent downward pressure on dollar-yen looks to come largely in line with broad dollar selling and fits well the move in interest rate spreads," which have made U.S. bonds less attractive, said Todd Elmer, a currency strategist at Citi. "This suggests that dollar-yen weakness is in large part a function of underlying fundamentals and given the failure from Japanese authorities to adopt additional easing measures (as of yet), they would be fighting a stiff headwind," he wrote in a note.
"Such a shift in Japan's policy stance would be a pre-cursor to outright intervention and as such doubt that such action is imminent," Elmer said.
Repercussions of the Fed
Wednesday's dollar rally against the euro came about after the Federal Reserve took a small step to keep monetary policy from inadvertently tightening. It plans to reinvest proceeds from maturing mortgage-related debt holdings back into Treasury debt in order to maintain the size of its balance sheet. Read about dollar's gains on Wednesday.
"The U.S. dollar's recovery against the euro is, on the face of it, rather surprising given that the [Fed] statement essentially rubber-stamped the market's views on U.S. interest rates," said Neil Mellor, currency strategist at Bank of New York Mellon. Read about Treasury bonds.
Declining rates have "guided the dollar steadily lower since the markets' crisis of confidence in the euro-zone's debt markets and ... the euro abated in early June," Mellor noted.
The answer may be found, he said, in renewed pressure on European bond spreads, with the yield premium demanded by investors to hold Greek, Irish, Spanish and Portuguese bonds over German debt widening on Wednesday.
