U.S. Markets

Dollar rises as risk appetite returns after Brussels attacks

NEW YORK (Reuters) - The dollar rose on Tuesday, erasing earlier losses tied to a global market sell-off in which investors dumped stocks and riskier assets after an attack in Brussels left hundreds wounded and at least 30 dead.

A U.S. one-hundred dollar bill (C) and Japanese 10,000 yen notes are spread in Tokyo, in this February 28, 2013 picture illustration. REUTERS/Shohei Miyano

The euro and British pound weakened as fears intensified that the deadly blasts, which the Islamic State claimed responsibility for, could increase the likelihood of Britain departing from the European Union.

Investor confidence outside Europe improved in afternoon U.S. trading as investors focused on encouraging signs of global growth. This spurred investors to shift from safe-haven currencies to the dollar and higher-yielding currencies.

“Despite the events overseas, generally, the market sentiment about growth, the market sentiment about China continues to become more positive and more optimistic,” said Jonathan Lewis, chief investment officer at Fiera Capital Inc in New York.

That boosted the Canadian CAD= and Australian dollars, which rose on the day. The two are largely considered risky because of their ties to commodities prices, but they offer higher interest rates than the U.S. dollar.

Emerging market currencies, including the Brazilian real, Russian rouble, and the Colombian and Mexican pesos also rose against the dollar.

Both commodity-linked and emerging market currencies tend to do well when investors are confident about the market.

Sterling GBP= was the day's biggest mover, falling by more than 1 percent to its lowest level against the dollar in a week. Analysts said the attacks on Brussels' airport and a rush-hour metro train might sway more voters to favor Britain leaving the EU in a June referendum.

“The attack in Brussels, on the back of terrorist attacks in Turkey over the weekend ... is bad news for the U.K., because it plays into the hands of those who want to leave, thinking that somehow if they leave they’re safe,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

The dollar reversed earlier losses against the yen, a favored safe haven in times of market volatility, and hit a nearly one-week high against the Japanese currency. It was last up 0.4 percent at 112.40 yen JPY=.

The euro fell 0.2 percent to $1.1214 EUR=, extending its recoil from Thursday's one-month high of $1.1342.

The dollar index .DXY, which measures the U.S. currency against six major rivals, rose 0.4 percent to 95.652.

Reporting by Dion Rabouin; Additional reporting by Anirban Nag in London; Editing by Paul Simao and Richard Chang