By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar extended gains versus most major rivals Thursday, as weak readings from surveys of purchasing managers in China and the euro zone compounded worries over the global economic outlook and spurred investors to dump risky assets.
The dollar index DXY +0.88% , which measures the U.S. currency against a trade-weighted basket of six other currencies, rose to 78.352, up from 77.089 in late North American trading on Wednesday.
The rise comes as global equities sold off and investors piled into safe-haven assets, including the dollar, U.S. Treasurys and German government bonds, or bunds, analysts said.
“The dollar is the chief FX beneficiary from the feverish activity in the markets,” said Kathleen Brooks, research director at Forex.com.
The move through the 78.00 level for the dollar index marks a 61.8% retracement of the down move from January to May, a significant level that suggests a dollar bounce is in “full swing” after the Federal Reserve announced Wednesday it would twist its bond portfolio in an effort to boost the U.S. economy, she said.
The euro EURUSD -0.82% slumped to its lowest level versus the dollar since February, changing hands in recent action $1.3454, down from $1.3618 late Wednesday.
A preliminary purchasing managers index for the euro zone showed private-sector activity contracted in September, indicating the region stands on the cusp of recession, economists said. Read about euro-zone PMI data.
It follows a drop in a purchasing managers index for China’s manufacturing sector. Read about China PMI.
Moreover, the data comes amid ongoing worries the euro-zone debt crisis could lead to defaults that could damage the region’s banking sector, potentially triggering a global financial crisis.
The euro/U.S. dollar pair “remains vulnerable to further downside price action on combination of weak economic data, a relatively restrained Fed and continuing turmoil in the credit markets,” said Boris Schlossberg, director of currency research at GFT. “If risk-aversion flows accelerate as North America comes on line, the pair will likely test support at $1.3400 as liquidation continues to gather momentum.”
The dollar gains extended a rally for the U.S. currency seen Wednesday after the Federal Reserve said it would trade short-term bonds for long-term ones — the so-called Operation Twist — in an effort to support the U.S. economy. The Fed also issued a downbeat assessment of that economy. See report on Wednesday’s currency moves.
“For the U.S. dollar, the key was that policy makers steered clear of a fresh wave of quantitative easing, thereby ensuring limited U.S. dollar damage,” said strategists at Credit Agricole.
Amid the moves, the Australian dollar AUDUSD -2.08% fell below parity with the greenback and changed hands in recent action at 98.38 U.S. cents, a drop of 2.1%.
The Australian dollar is “a growth barometer and risk barometer, and it’s held up remarkably well over the last few months, but I think all of the bad news is starting to catch up with it,” said Su-Lin Ong, strategist at Royal Bank of Canada Capital Markets.
“There’s probably only so much it can withstand at the moment, and you have to admit that sentiment is pretty awful,“ she said.
The British pound GBPUSD -0.59% traded at $1.5414, slipping from $1.5528.
The dollar USDJPY -0.17% lost out versus the safe-haven yen, however, changing hands at ¥76.34, down from ¥76.63 in late Wednesday trading.
William L. Watts is a reporter for MarketWatch in Frankfurt.
Sarah Turner is MarketWatch's bureau chief in Sydney.
