August 12, 2010 / 6:01 PM / 9 years ago

FOREX-US dollar rises broadly on global growth fears

* US jobless claims unexpectedly rise last week

* Risk aversion remains dominant theme in market

* Dollar holds above 85 yen on intervention talk (Adds details, updates prices; changes byline)

By Wanfeng Zhou and Vivianne Rodrigues

NEW YORK, Aug 12 (Reuters) - The U.S. dollar rose against major currencies on Thursday, extending the previous day’s gains, as an unexpected rise in U.S. weekly jobless claims and weaker-than-expected euro zone data spurred safe-haven demand.

The euro earlier slid to a three-week low against the dollar after figures showed Greece’s economy shrank more than expected in the second quarter, while euro zone industrial production unexpectedly declined in June.

Separate data showed the number of Americans filing new claims for unemployment insurance unexpectedly rose in the latest week to its highest in nearly six months, the latest sign of a flagging U.S. economic recovery. [ID:nN11227633]

The U.S. and euro zone data followed a gloomier outlook from the Federal Reserve and weak Chinese data earlier this week, underscoring worries about the global economy and prompting investors to dump risky assets.

“It seems like the negative correlation between bad news and the U.S. dollar is back,” said Brendan McGrath, manager of business solutions at Custom House, a Western Union company, in Victoria, British Columbia.

The ICE Futures U.S. dollar index .DXY, which measures the greenback versus a basket of major currencies, rose 0.4 percent to 82.612, after hitting a session peak of 82.786, its highest since late July.

The greenback had come under heavy selling pressure since early June as investors increasingly focused on deteriorating economic conditions in the United States. But the currency has rebounded sharply this week on a growing view that if the U.S. economy is slowing materially, it is not alone.

“Investors were aware of a slowdown in the U.S. economic recovery, but now there are concerns other economies won’t be able to decouple from slower growth here and in China,” said Jessica Hoversen, fixed income and currency analyst at MF Global in Chicago. “Markets are re-pricing and with that, we are likely to see some dollar strength.”

Custom House’s McGrath cautioned, however, that while the dollar may see a bit of a rebound, “a prolonged stage of dollar strength” seems unlikely. “The prospect for the U.S. economy is still quite dismal. The fundamentals are still going to weigh on it in the long term, especially if the Fed has to adopt more quantitative easing measures.”

DOLLAR HOLDS ABOVE 85 YEN

The euro fell as low as $1.2782, according to Reuters data. It was last up 0.2 percent at $1.2856 EUR= as U.S. stocks came off their worst levels. Some traders also noted buying by Asian central banks and a Swiss private bank.

The single euro zone currency tumbled 2.6 percent on Wednesday, its biggest one-day loss since October 2008.

Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto, said euro/dollar has broken below key technical levels during its decline this week and momentum continues to favor further losses.

The next key support level comes in at around $1.2777, the 38.2 percent Fibonacci retracement from the pair’s low set on June 7 to its high on Aug. 6, traders said.

The dollar JPY= rose 0.8 percent to 85.84 yen after rising as high as 86.03, according to Reuters data. It fell to a 15-year low on Wednesday at 84.72 on electronic trading platform EBS, fueled by a narrowing spread between U.S. and Japanese government bond yields.

The dollar had bounced against the yen earlier in the global session after market sources told Reuters the Bank of Japan checked exchange rates with banks. [ID:nTKZ006485]

Japanese Finance Minister Yoshihiko Noda reiterated the government’s position that it is closely watching currency movements and that disorderly moves would hurt the economy. [ID:nTOE67B069]

Noda’s comments came after Japanese Prime Minister Naoto Kan was quoted as saying yen moves have been “rough,” and some analysts said this suggested Japanese authorities may be stepping up efforts to rein in yen strength. [ID:nTKU106189] (Editing by Diane Craft)

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