TORONTO (Dow Jones)--The dollar and the yen have advanced Thursday, gaining from renewed interest in safe-haven assets as investors once again find reasons to shun risk.
Slumping global equity markets, pullbacks for gold and other commodities, and indications from around the globe of a more restrictive official stance toward capital flows and currency volatility have all contributed to a fresh bout of risk aversion.
This in turn has encouraged some profit-taking and led investors to seek refuge in the dollar and the yen.
Early Thursday, the euro was at $1.4868 from $1.4960 late Wednesday. The dollar was at Y88.82 from Y89.38, and the euro was at Y131.98 from Y133.73. The U.K. pound was at $1.6625 from $1.6740. The dollar was at CHF1.0173 from CHF1.0100.
The Dollar Index, which tracks the greenback against a trade-weighted basket of six currencies, was at 75.483 from 75.079 late Wednesday.
The greenback is up broadly against all its major rivals save the yen, but currency movements have nevertheless been confined to recent ranges as the market continues to debate the speed of economic recovery and the direction of U.S. monetary policy.
Overnight, declines in Asian and European stock markets and downward corrections for most commodity prices typified the more guarded investor attitude toward riskier investments.
Some of the caution has flowed from less-than-encouraging economic data, but also ambivalent signals from Federal Reserve speakers about the possible timing of eventual interest-rate hikes and the Fed's attitude toward the weakening dollar.
Overnight, Dallas Federal Reserve President Richard Fisher said that a gradual decline in the dollar isn't likely to spark inflationary pressure given other disinflationary forces in play at present, while Philadelphia Federal Reserve Chairman Charles Plosser said following a speech in Singapore that a weaker dollar isn't that surprising in the wake of the financial crisis.
Also weighing on risk attitudes have been various restrictions imposed by some emerging-market central banks to limit the appreciations of their respective currencies against the dollar.
Brazil on Wednesday imposed an immediate tax on depository receipts of Brazilian companies, a move which isn't seen as having much direct impact on major currencies, but nevertheless is being taken as an indication of heightened official concern about local currency appreciation versus the dollar.
"This isn't seen as risk-attractive--free markets are what attract risk capital," said Jack Spitz, director of foreign exchange at National Bank in Toronto. "Restricting a free market environment is going to be seen as reducing the overall appetite for risk."
South Korea also unveiled several measures aimed at helping local firms better manage foreign exchange risks and reducing imbalances that have made its market susceptible to bouts of volatility.
The steps announced by the Financial Services Commission Thursday mark an effort to reduce the risk of swings in currency rates driven by Korean firms hedging foreign cash flows and managing foreign liabilities. The FSC aims to have the rules take effect early next year.
Earlier in the week, reports indicated Indonesia may also be considering some form of capital control to help quell the appreciation of its currency.
Official concern over local currencies tended to aid the U.S. currency from the start of global trading Thursday. The greenback has seen hefty gains against the New Zealand and Australian dollars Thursday, with its rise against the New Zealand unit keyed by a policy paper presented to New Zealand's parliament urging the Reserve Bank of New Zealand to keep its policy rate low and to otherwise continue stimulating growth. It also expressed concern about a strong New Zealand dollar.
"Those are not new concepts but the circulation of the policy paper did get more attention overnight, contributing to slippage in both yields and the New Zealand dollar," said currency strategists at HSBC Group.
Elsewhere, the U.K. pound remained down against the dollar after U.K. retail sales rose by 0.4% last month. The market had been hoping for an acceleration to 0.6% after September's 0.5% rise.
Sentiment toward sterling also wasn't helped by public-sector borrowing data showing that the deficit amounted to GBP11.4 billion last month, and not the GBP7 billion the market had expected.
U.S. data released so far Thursday haven't played into the more risk-averse climate in any material way, as jobless claims for the week ending Nov. 14 were reported as unchanged at the previous week's 505,000 level, instead of increasing slightly as expected.
The currency market will now eye the mid-morning release of the November Philadelphia Federal Reserve index of manufacturing activity, and October leading indicators data.
Canada Morning
The Canadian dollar was weaker early Thursday alongside the slump for gold, oil, and other commodity prices.
The Canadian currency overnight sank to its lowest levels in almost two weeks and is seen continuing to trade with a guarded tone ahead of a speech and press conference in New York Thursday evening by Bank of Canada Gov. Mark Carney.
The U.S. dollar was at C$1.0639 from C$1.0554 late Wednesday.
-By Paul Evans; Dow Jones Newswires; (416) 306-2022; paulr.evans@dowjones.com
