The dollar headed for weekly gains against most of its major peers as investors flocked to the world’s reserve currency before U.S. and German data that may add to signs that the global economy is slowing. The yen pared its biggest weekly drop in four months versus the dollar as declining Asian stocks increased demand for havens a day after Japan sold its currency. The euro touched a record low against the Swiss franc and Malaysia’s ringgit led Asian currencies lower. The Australian dollar headed for its biggest weekly decline in more than a year after the Reserve Bank cut its forecast for 2011 economic growth. “We’re seeing a slowdown in the U.S. economy and also more broadly,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The U.S. dollar is still the safe haven so we’ll probably see more dollar buying as commodities and equities fall.” The dollar traded at $1.4117 per euro as of 6:32 a.m. in London from $1.4092 yesterday, headed for a 2 percent weekly gain, the biggest since the five days ended June 10. It bought 78.61 yen from 78.89 yesterday and headed for a 2.4 percent weekly advance, the most since the period ended April 1. The Swiss franc has risen 4.5 percent since July 29 to 1.08296 per euro and earlier today touched a record 1.07112. Implied volatility among currencies of the Group of Seven nations jumped to 12.72 percent, the highest level since March, according to the JPMorgan Chase & Co. Volatility Index. Equity Declines German industrial production rose 0.1 percent in June from a month earlier, when it gained 1.2 percent, according to the median forecast of economists in a Bloomberg News survey before the Economy Ministry report in Berlin today. U.S. payrolls climbed by 85,000 in July after an 18,000 increase in June that was the smallest this year, a separate survey showed before the Labor Department data. The jobless rate held at 9.2 percent. The MSCI Asia Pacific index of stocks dropped 4.1 percent after the Standard & Poor’s 500 Index tumbled 4.8 percent in New York. Malaysia’s ringgit slid 1.2 percent to 3.009 per dollar while South Korea’s won lost 0.9 percent to 1,068.85. The extra yield two-year Treasuries offer instead of similar-maturity Japanese notes fell to 10.7 basis points yesterday, the least since September 1992, reducing the appeal of dollar-denominated assets. Fed funds futures indicated a 6.2 percent chance the U.S. central bank will raise its target lending rate by March, down from a 13 percent probability the previous day. Japan’s Intervention The yen “has been supported by globally low interest rates,” Hans Redeker, head of foreign-exchange strategy at Morgan Stanley, wrote in a report yesterday. A lasting turnaround in the yen would “require a stronger global growth environment, higher overseas rates and yields.” Yesterday was the third time Japan sold its currency to support exporters after six years of a hands-off approach that ended in September 2010. Finance Minister Yoshihiko Noda said the action was unilateral. It probably spent 4 trillion yen ($51 billion) in the operation, the Nikkei newspaper reported, without saying where it obtained the information. The Bank of Japan sold 692.5 billion yen on March 18, when it led a coordinated effort with the G-7 to counter a jump in the yen after the March 11 earthquake and tsunami. Last September, Japan unilaterally sold 2.12 trillion yen. ‘Risk-off Impetus’ “The risk-off impetus that the yen typically is subject to is playing a part,” said Sacha Tihanyi, a Hong Kong-based senior currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia. “Though the BOJ’s bid on the dollar-yen is going to be a threat, there is also going to be solid buying pressure on the yen.” Japan’s currency briefly weakened in the afternoon session to 79.41 per dollar before resuming its advance. The euro slumped 3.9 percent for the past three months, the second-worst performer after the Swedish Krona among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes, as a slowing economy dimmed prospects for higher interest rates in the region. European Central Bank President Jean-Claude Trichet said yesterday the bank has resumed bond purchases and will offer banks more cash to stop the region’s sovereign-debt crisis from engulfing Italy and Spain. “Downside risks may have intensified,” he said as the central bank kept its benchmark interest rate at 1.5 percent. China will continue to support Europe and the euro in future, Foreign Minister Yang Jiechi said, according to a statement on the ministry’s website today. China has always had confidence in the euro zone and euro, he said. The Reserve Bank of Australia said in its quarterly monetary policy statement today that economic output will likely grow at an average of 2 percent this year, down from its May 6 estimate of 3.25 percent. Australia’s dollar traded at $1.0474, headed for a 4.7 percent decline this week, the most since July 2010. To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net Masaki Kondo in Singapore at mkondo3@bloomberg.net; To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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