LONDON -- With low risk appetite prevailing in global markets, the dollar and the yen were higher in Europe Friday.
The euro was the main loser as Japan admitted that its economy was sliding back into deflation for the first time in three years.
At 1030 GMT, the dollar was down at Y88.84 from Y89.03 late Thursday in New York, according to EBS.
The euro was down at $1.4878 from $1.4925 and at 132.20 yen from 132.25 yen. The dollar is also up at 1.0164 Swiss francs from 1.0129 Swiss francs while the pound has fallen to $1.6539 from $1.6658.
The Bank of Japan actually upgraded its outlook for the economy earlier Friday but the government is expected to keep pressure on the central bank to ease monetary policy further if needed.
This gloom about the global recovery, which has been hanging over markets for the last day or two, is unlikely to be dispelled in the near-term given the lack of new economic data.
U.S. President Barack Obama and Treasury Secretary Timothy Geithner only made matters worse with their warnings that a double dip recession remains a risk for the U.S. if the fiscal deficit isn't resolved.
Although the Organization for Economic Coordination and Development raised its forecast for global growth next year to 1.9% from 0.7%, global equity markets remained in decline.
A 0.9% fall in the Dow Jones Industrial Average was followed by a 0.5% loss in the Nikkei in Japan and a 0.4% decline in the Shanghai Composite Index in China.
However, in Europe, major bourses were heading a little higher at the start on reports of options expiry and some bargain-hunting. Analysts suggested that losses earlier in the week may also have been overdone.
Later in the day, the focus will be on a speech by European Central Bank President Jean-Claude Trichet for any comments he might make on the recent weakness of the dollar, suggesting that a strong dollar is in everyone's interests.
"In the current environment, with risk appetite on the back foot, his words may find a more willing audience, which suggests a little more downside pressure on euro/dollar," said Stuart Bennett, senior foreign exchange strategist at Calyon Credit Agricole in London.
At one stage, sterling fell to a one-week low at $1.6532 after Nationwide reported that growth in U.K. unemployment during 2010 will put downward pressure on house prices. The pound was also still suffering from Thursday's report showing that government borrowing hit a new record October high.
This is reversal in sterling's good fortunes that have kept it pushing steadily higher against the dollar in recent weeks.
