Economic worries drive dollar lower against yen

AP News
Posted: Jun 08, 2011 3:54 PM
Economic worries drive dollar lower against yen

The dollar fell Wednesday against other safe-haven currencies, the yen and the Swiss franc, a day after comments from Federal Reserve Chairman Ben Bernanke heightened investor worries about a weakening U.S. economy.

But the dollar gained against currencies of countries that have higher interest rates such as the euro and Canadian and Australian dollars. Those currencies can benefit when investors are bullish and willing to make riskier bets; they suffer when worries about economic slowdown hit traders' confidence.

Bernanke says that higher gas prices and the Japanese crisis have hurt the U.S. economy but expects the hit will be temporary. A slowdown in the U.S., the world's biggest economy, could hurt other countries.

The dollar fell to a one-month low against the yen and traded near a record low versus the Swiss franc. In late trading, the U.S. currency fell to 79.94 yen from 80.19 yen, and dropped to 0.8371 Swiss franc from 0.8375.

Meanwhile, the euro slipped to $1.4581 from $1.4695, retreating from a one-month high of $1.4696 hit on Tuesday. The euro has risen steeply since May 23, the last time it traded below $1.40, because investors are increasingly reassured that European officials will put together an extended aid package for Greece. Greece already received a 110 billion euros ($161 billion) international rescue package last year, but its borrowing costs remain high and investors fear a default without additional aid.

European finance officials have not yet been able to agree on how to structure the deal, however. On Wednesday, the euro came under pressure because the German finance minister proposed that a new package should require "quantified and substantial contribution" from private bondholders. That could imply a default, and the European Central Bank has strongly opposed such a move.

A default in Greece could trigger more downgrades from ratings agencies, hurt the Greek banking system and push up the borrowing costs for other indebted European countries.

In other trading, the British pound fell to $1.6390 from $1.6451, while the dollar rose to 97.92 Canadian cents from 97.38 Canadian cents. The Australian dollar dropped to $1.0623 from $1.0736. The dollar was also higher against most of the world's other actively traded currencies.