Dollar Index Breaks Longest String of Weekly Losses Since 2004 on Economy

The Dollar Index surged, breaking its longest stretch of weekly losses in more than five years, as concern the global economic recovery is stumbling curbed investors’ appetite for higher-yielding assets.

The U.S. currency rose against all 16 of its most-traded counterparts as data from Europe, China and America fueled demand for safety. The euro fell against most major currencies, while the yen touched a 15-year high versus the dollar after the Federal Reserve said the recovery will be “more modest.” U.S. producer prices rose in July, a report next week may show.

“With the economy expected to grow at a much slower rate, investors were looking for safe-haven buying,” said Dennis Cajigas, a senior market strategist at brokerage MF Global Holdings Ltd. in Chicago. “It’s not just in the U.S., but around the world. We did see slower growth in China and Europe’s recovery is bifurcated. The dollar is taking precedence.”

The dollar strengthened 4.1 percent, the most since May, to $1.2754 per euro yesterday in New York, from $1.3280 on Aug. 6. The greenback rose 0.8 percent to 86.20 yen, from 85.51 on Aug. 6. It touched 84.73 yen on Aug. 11, the weakest level since July 1995. The yen appreciated 3.2 percent to 109.92 per euro, from 113.55 a week earlier.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major trading partners, rose 3.1 percent to 82.920. It fell for the past nine weeks, the longest losing period since the 11 weeks ended Dec. 3, 2004.

U.S. Sales, Prices

Sales at U.S. retailers rose in July less than forecast and core consumer prices grew at a rate that matched the smallest year-over-year gain in 44 years, government reports showed yesterday.

“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a policy statement on Aug. 10.

The central bank left the target rate for overnight loans between banks in a range of zero to 0.25 percent, where it’s been since December 2008, and said it will buy Treasuries with proceeds from its mortgage holdings to help bolster the economy.

“Obviously the headline has been twofold: the FOMC and U.S. data coming out,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “The global outlook was a little more uncertain, so the dollar has gotten more of a safe- haven bid.”

Sales at U.S. retailers increased 0.4 percent, Commerce Department data showed, compared with a 0.5 percent gain forecast in a Bloomberg News survey. Consumer prices excluding food and energy increased 0.9 percent in July from the year before, matching the smallest year-over-year gain since 1966, the Labor Department reported.

Chinese Production

Chinese industrial production increased the least last month since August 2009, and England pared its growth outlook, other data showed this week. The economy of Greece, the nation whose budget problems triggered Europe’s sovereign-debt crisis, shrank for a seventh quarter and unemployment rose, two reports showed yesterday.

The euro fell below its 100-day moving average of $1.2809 on Aug. 12. It touched $1.2750 yesterday, the lowest level since July 22.

“We had a resurgence of sovereign-debt risk concerns out of Europe; that created a stronger sell-off dynamic in Europe and that contributed to dollar strength,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York.

Yen Rally

The yen has risen 13 percent this year, the most among 10 developed-world currencies, Bloomberg Correlation-Weighted Currency Indices show. Its rally has fueled speculation the government may intervene to curb its appreciation. Central banks intervene in the foreign-exchange market when they buy or sell currencies to influence exchange rates.

Some Bank of Japan board members said the central bank needs to closely monitor the effect of a stronger yen and falling stock prices on the economy, according to the minutes of the July 14-15 meeting published yesterday.

The dollar may slide to near its lowest in almost 40 years against the yen amid concern the global economic recovery is slowing, BNP Paribas SA said. The dollar’s weakest level since Japan scrapped a peg of 360 to the U.S. currency in 1971 came in April 1995 when it reached 79.75 yen.

The U.S. producer price index rose 0.2 percent in July after dropping 0.5 percent the previous month, according to the median forecast in a Bloomberg News survey of 58 economists before the Labor Department reports the data on Aug. 17.

Australia’s dollar dropped for the first time in four weeks against the greenback amid concern growth is slowing in China, the South Pacific nation’s largest trading partner. The Aussie weakened 2.8 percent to 89.29 U.S. cents.

The pound dropped for the first week since July 9 after the Bank of England said U.K. economic growth will probably peak at a 3 percent annual pace instead of the 3.6 percent rate forecast in May. Sterling lost 2.2 percent to $1.5592, from $1.5942 in the five-day period ended Aug. 6.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

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