Dollar, Yen Up As Risk Appetite Falls Further

LONDON (Dow Jones)--Worries about the global economy, falling oil prices as well as unrest in China all took their toll on risk appetite, lifting the safe-haven dollar and yen in Europe Wednesday.
But major currencies remained range bound for the most part with investors reluctant to take large positions ahead of the Group of Eight leading nations meeting in Italy and the start of the second-quarter earnings season later in the day.
See chart at
http://www.dowjoneswebservices.com/chart/view/2386
Although there were a few bright spots in the economic data calendar, including a rise in Australian and U.K. consumer sentiment, the overall picture remains gloomy with the market focusing on figures such as the 3.0% fall in Japan's core machinery orders for May.
This suggests that any improvement in industrial production may be short-lived given the lack of new capital investment.
Developments in China, which is experiencing the worst civic unrest since the Cultural Revolution, are also casting a shadow over sentiment, with Chinese President Hu Jintao having to abandon plans to attend the summit meeting of G8 leaders in Italy starting Wednesday.
Analysts warn that continued unrest could start to have an impact on China's growth expectations.
An even more telling sign of global growth concerns is coming, however, from the sharp slide in crude oil prices, which suggests that energy demand is expected to fall. The price of crude on the New York Mercantile Exchange is down 64 cents from New York's close at $62.29 a barrel.
Disappointment is also expected to come from the second-quarter earnings season which kicks off later in the day with Alcoa's latest results.
Also, markets are being very wary of comments that could come out of the G8 summit. Not only could there be further calls for the dollar to be replaced as a reserve currency, but there could also be unflattering remarks about the state of the global economy.
All this helped to ensure that equity prices continued their recent slide. The Dow Jones Industrial Average tumbled 1.9%, then the Nikkei lost 2.4% before European bourses shaved off another 0.1%-0.4%.
By 0930 GMT, the dollar had fallen to Y94.27 from Y94.82 late Tuesday in New York, according to EBS.
The euro slightly fell to $1.3911 from $1.3912 and to Y131.16 from Y131.91 as an update of the euro zone's second-quarter GDP contraction came in at 2.5%, much as the market had expected.
The dollar was also at CHF1.0898 from CHF1.0897, but the Swiss franc was strengthening against the sinking euro. Although at CHF1.5166, the euro is still trading well above the so-called line in the sand of CHF1.50, the market remains wary of more intervention from the Swiss National Bank to push the franc lower.
The pound, meanwhile, fell to $1.6112 from $1.6128, shrugging off a rise in consumer sentiment to levels last seen in October 2008 and focusing more on negative developments such as the 0.5% fall in Halifax house prices last month.
With risk aversion on the rise, so was the euro against its East European neighbors. The single currency rose to HUF277.76 from HUF275.71 and to PLN4.4236 from PLN4.4007. It was also up at CZK26.075 from CZK25.978.
-By Nicholas Hastings, Dow Jones Newswires; 44 20 7842 9493; nick.hastings@dowjones.com
TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkBackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.