NEW YORK (Dow Jones)--The dollar was sharply higher against most rivals Thursday morning in New York on the back of a slump in U.S. stocks, concerns about the euro zone's credit problems and speculation that China may tighten monetary policy.
The rally in the U.S. currency got a boost after the Dow Jones Industrial Average fell deeper into the red, dipping more than 130 points. Oil, gold and other metal prices are sharply lower.
A wave of risk aversion washed over markets as U.S. stocks swung from a gain to a sharp loss, sending investors strongly into the safe-haven dollar, said John McCarthy, manager of currency trading at ING Capital Markets in New York.
"That is bringing risk off the table," McCarthy said, benefiting the dollar and yen.
As stocks and commodities prices tumbled, the euro hit fresh intraday lows against the yen, sinking to Y128.07, the lowest in more than a month. The Japanese currency, viewed as a safe haven for investors, also hit intraday highs against the dollar, as the flight for safe haven assets intensified.
Thursday morning in New York, the euro was at $1.4050 from $1.4102 late Wednesday, according to EBS via CQG. The dollar was at Y91.16 from Y91.23, while the euro was at Y128.10 from Y128.69. The U.K. pound was at $1.6183 from $1.6285. The dollar was at CHF1.0468 from CHF1.0443.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 78.614 from 78.369. It earlier hit 78.814, its highest level since Sept. 2.
The dollar's rally began overnight when China reported its gross domestic product had expanded at 10.7% in the fourth quarter of last year, up from 9.1% in the third quarter. Beijing also disclosed that inflation had risen as far as 1.9%, instead of increasing to only 1.7% as expected.
The Chinese data signals that "tighter policy is just around the corner as Beijing seeks to prevent the economy from overheating," RBC Capital strategists wrote in a note to clients.
The euro had dipped to $1.4029, the lowest level since July 30, during overnight trading on the back a slew of negative news out of euro zone, including concerns over sovereign debt and weaker economic data.
A spokeswoman for the European Commission, the European Union's executive arm, Thursday said she isn't aware of any financial bailout packages being arranged for Greece.
The IMF warned that if Portugal doesn't reduce public wages and boost revenues this year, its deficit/GDP ratio will rise to 8.6%. Under the Maastricht Treaty, euro-zone countries are supposed to limit that ratio to 3%.
In the meantime, the latest PMI surveys from the region were disappointing on the whole with the composite PMI--covering both manufacturing and services--coming in at 53.6 this month, down from 54.2 last month and lower than the 53.7 that had been forecast.
"The two dominant themes in the currency markets are the Greek financial difficulties and also what's happening in China in terms of possible tightening," Nick Bennenbroek, head of currency strategy at Wells Fargo in New York. "The dominant trend is for a stronger dollar."
The dollar's advances briefly lost steam after the Philadelphia Federal Reserve reported that its business activity index slowed to 15.2 in January, from 22.5 in December and compared to economists' estimates of an 18.0 reading.
"The relatively shallow pullback in the dollar was greeted with renewed buying and this would suggest the dollar's recovery is not over," said Marc Chandler, global head of foreign exchange strategy at Brown Brothers Harriman in New York. "At the moment the foreign exchange market does not appear to be driven by economic data."
-By Fabio Alves, Dow Jones Newswires; 212-416-2204;
