Broad gains for the greenback, with the yen the only exception
As resurgent fears about the fragile financial sector knocked down global equity markets Tuesday, the dollar was the beneficiary as a further round of investment money flowed into the greenback, strategists said.
The dollar has tended to gain from worries about the world economy and periods of rising financial turmoil as investors flee assets perceived to be more risky.
"The delicate increase in optimism in recent weeks about a recovery in the global economy paused overnight, dampened by speculation about the true severity of the state of the banking industry," wrote Brown Brothers Harriman strategists in a research note.
The dollar index , which measures the greenback against a trade-weighted basket of six major currencies, stood at 85.343, up from 84.695 in North American trading late Monday.
Upsetting the overall market sentiment, The Times of London reported that the International Monetary Fund is preparing to forecast that toxic debts racked up by banks and insurers could rise to $4 trillion.
The IMF in January said it expected the decline in U.S.-origin assets to reach $2.2 trillion by the end of next year but is now weighing whether to raise that estimate to $3.1 trillion in a report to be issued April 21, the newspaper said. The Washington-based IMF is also considering whether to boost the total by another $900 billion to reflect toxic assets originated in Europe and Asia.
Meanwhile, hedge-fund manager George Soros, in an interview on Bloomberg television early Tuesday, said the banking sector remains "on life support" and caled gains by stocks in recent weeks a "bear market rally." A bull market hasn't started because the economy hasn't yet turned around, the billionaire said.
Asian stocks fell overnight, following a lower close by Wall Street Monday. European stocks were also under pressure in Tuesday's dealings. See Asia Markets. Read Europe Markets.
Nervousness ahead of the start of earnings season weighed down U.S. stocks, with futures pointing to a lower opening for Wall Street. See Indications.
Euro-zone, British data offer no refuge
The euro fell to $1.3236 against the dollar, down from $1.3408.
The single currency extended losses after the European Union statistics agency Eurostat said the region's record economic contraction in the final three months of 2008 was even deeper than previously thought -- and economists say data over the first three months of 2009 point to a first-quarter GDP contraction nearly as deep.
Eurostat revised down its estimate of fourth-quarter activity to show a 1.6% drop in GDP compared to the third quarter. Compared to the final quarter of 2007, GDP fell 1.5%, wider than an earlier estimate of a 1.3% decline. See Economic Report.
"There is no illusion that 2009 will be the worst year in terms of economic performance for the euro member states since the Second World War," said Joerg Radeke, an economist at the Center for Economic and Business Research.
A stabilization of some early leading indicators, however, including purchasing managers' indexes for services and manufacturing, suggests the drop in output could bottom out by mid-2009, he said.
The dollar lost ground against a broadly higher Japanese yen, changing hands at 100.09 yen, down from 101.02 late Monday.
The yen's generally been even more sensitive than the dollar to shifts in investors' willingness to take on risk -- outpacing other currencies to the upside during financial turmoil and falling when sentiment improves.
As expected, the Bank of Japan's policy board on Tuesday took additional measures to help the flagging economy, expanding collateral that can be used for loans. The central bank warned, however, that economic conditions will continue to deteriorate. See full story.
Losing ground, the British pound slipped to $1.4631, down from $1.4743 late Monday.
