By Bo Nielsen and Yasuhiko Seki Feb. 4 (Bloomberg) -- The dollar rose to the strongest level since July versus the euro as concern the global recovery will be uneven as some European nations struggle to cut their deficits hurt demand for higher-yielding currencies. The U.S. currency climbed against 15 of the 16 most-traded currencies, sending the Dollar Index up for a second day. The euro fell on speculation the European Central Bank will refrain from ending emergency measures at a meeting today as Greece fights to curb its budget deficit. The yen gained after reports showed Australian retail sales unexpectedly shrank and New Zealand’s jobless rate surged to the highest level since 1999. “We’re going through a period of higher volatility and the dollar tends do well in that environment,” said Lauren Rosborough, a senior currency analyst at Westpac Banking Corp. in London. “If any of the negative events in Europe come through, the impact will be significant.” The dollar appreciated 0.3 percent to $1.3856 per euro as of 8:27 a.m. in London and traded at $1.3845, the strongest level since July 8. The yen strengthened to 126.06 per euro and to 63.35 against New Zealand’s dollar. The U.S. dollar was unchanged at 90.98 yen. The euro has lost 3.7 percent this year against the dollar on concern Greece and other so-called peripheral nations will face increasing difficulty in curbing budget deficits that are in excess of European Union limits. Strike Threat Greece’s largest union is set to approve its second strike this month following Prime Minister George Papandreou’s pledge yesterday to raise taxes and increase the retirement age. Greece, Portugal and Spain have suffered a “permanent” decline in competitiveness since joining the euro, European Monetary Affairs Commissioner Joaquin Almunia said yesterday. “Almunia warned that Greece and Portugal have quite big financing needs,” analysts led by Hans-Guenter Redeker, London- based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note today. “The euro-dollar is on the edge of its next leg down.” The ECB will keep its main interest rate unchanged at 1 percent after its meeting today, according to all 55 economists surveyed by Bloomberg. The New Zealand dollar declined against all of its 16 most- traded peers tracked by Bloomberg, losing 1.3 percent versus the yen. The Australian dollar dropped versus 15 of 16. ‘Emerging Uncertainties’ Australian retail sales fell 0.7 percent in December from November, the Bureau of Statistics said in Sydney. Economists had forecast a gain. New Zealand’s unemployment rate climbed to 7.3 percent last quarter from 6.5 percent in the previous three months, Statistics New Zealand said. “Emerging uncertainties about the Australian economy hurt sentiment toward higher-yielding currencies,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “Lingering sovereign woes in Europe also helped strengthen risk aversion.” Stocks declined, with the MSCI World Index fall 0.4 percent. The yen tends to strengthen during times of economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign capital. The dollar benefits from its role as the world’s reserve currency. Implied volatility on one-month euro-dollar options rose to 10.6 percent from 10.4 percent in New York yesterday. Wider fluctuations increase the risk for carry trades, where money borrowed from countries with relatively low interest rates is used to invest for higher yields. “Volatility is absolutely going to persist in the foreign- exchange market,” Monica Fan, a senior currency product engineer at State Street Global Advisors, said in a Bloomberg Television interview. “The market’s been hit by a series of micro-geopolitical event risks. Certainly investors are being forced to be much more nimble about the types of strategies they are undertaking.” To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

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