The dollar and yen jumped on concern global growth is stalling after the Federal Reserve said yesterday it saw “significant downside risks” to the U.S. economy, spurring demand for safer assets. The Dollar Index rose to a seven-month high as the Fed’s statement fuelled concern the global economy is headed for another recession. The euro fell to the lowest since February versus the dollar even as Greece said it will accelerate budget cuts to keep emergency loans flowing. Australia’s dollar slid below parity with the greenback for the first time in six weeks and New Zealand’s dollar slumped. “The Fed seems very cautious and we’re now moving back towards a more risk-off story, which is benefitting the dollar,” said Audrey Childe-Freeman, global head of currency strategy in London at the private-banking unit of JPMorgan Chase & Co. “Investors are worried about the risks to the global economy. In that situation, currencies that are exposed to cyclical growth fluctuations will suffer while the dollar will benefits from the safe-haven bid.” The dollar advanced 0.7 percent to $1.3474 per euro at 10:37 a.m. in London, after rising to $1.3448, the strongest since Feb. 14. The yen rose 0.8 percent to 102.95 per euro, after reaching 102.62, the highest since June 2001. Japan’s currency was little changed at 76.41 per dollar. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, rose 0.8 percent to 78.331, after climbing to 78.434, the highest level since Feb. 16. ‘Downside Risks’ The Fed said after a two-day meeting ended yesterday that it will extend the average maturities of the Treasuries in its portfolio by purchasing $400 billion of long-term debt while selling an equal amount of shorter-term securities. “The response across both currency and broader asset markets looks very much like what we’d anticipate on the basis of disappointment that the Fed didn’t adopt a third round of quantitative easing,” said Todd Elmer, head of Group-of-10 currency strategy for Asia excluding Japan at Citigroup Inc. in Singapore. “If there is further dollar strengthening, we’d expect that to be concentrated against the euro.” The Fed will also reinvest maturing home-loan debt into mortgage-backed securities instead of Treasuries. The action “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the Federal Open Market Committee said. The Stoxx Europe 600 Index slid 3.6 percent, and the MSCI Asia Pacific Index declined 4 percent. Euro Falls The euro weakened for a fifth day against the yen after Greece said it will target civil servants’ wages and pensioners to secure its next aid payout. Austerity measures announced yesterday include a 20 percent cut in pensions of more than 1,200 euros a month and lower wages for 30,000 state employees. The policies were demanded by international lenders to ensure Greece meets the deficit-reduction targets that are a condition of its 110 billion-euro bailout package. The Australian dollar dropped below parity with its U.S. counterpart for the first time since Aug. 9 after an index from HSBC Holdings Plc and Markit Economics predicted China’s manufacturing will shrink for a third month in September. China is Australia’s largest trading partner. “China is going to have an impact on sentiment towards the Aussie because the Aussie is seen as a freely tradable proxy for the growth profile in, particularly, China because of its resource need,” said Tim Riddell, Singapore-based head of global markets research for Asia at Australia & New Zealand Banking Group Ltd. The Aussie fell 1.6 percent to 98.86 U.S. cents after sliding to 99.77. The New Zealand dollar weakened 1.5 percent to 78.93 cents. To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net; To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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