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. The pound plunged for the third day against the dollar after the Bank of England reduced its forecast for economic growth and inflation and a report showed consumer confidence slumped. “The fact that the Fed is now acknowledging slower growth than expected in the near term has hit risk assets,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s a growing realization that there’s no such thing as U.S. decoupling and that’s bringing back safe- haven flows into the dollar.” The dollar rose 1.3 percent to $1.3007 per euro at 7:37 a.m. in New York, the biggest gain since June 4 based on closing prices. The yen appreciated to 110.46 per euro from 112.58 yesterday. The Japanese currency advanced to 84.91 per dollar from 85.44, after climbing to 84.73, the strongest since July 5, 1995. The pound fell 0.9 percent to $1.5710 per pound, the biggest drop since July 16. The Fed 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. Fed Reinvests 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. 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. Factory Output The MSCI Asia Pacific Index of shares dropped for a third day, losing 1.5 percent, while the Stoxx Europe 600 Index fell 1.4 percent. China said factory output, retail sales and new lending for investment in fixed assets all slowed, adding to evidence growth is ebbing. The pound declined as the Bank of England today 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. “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.

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