Safe-haven dollar jumps higher as homeowners, job-seekers struggle; some wary of ‘double dip’

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Dollar gains as homeowners, job-seekers struggle

WASHINGTON — The dollar’s appeal as a safe haven sent it higher in trading Thursday after reports on housing and unemployment raised fears that the economy will be weak next year.

Some analysts said the slight rebound could signal that the dollar will stabilize against major currencies and halt an eight-month slide.

U.S. Treasurys, based in dollars, became an attractive alternative to riskier investments during the worst of the economic crisis. But the stock market has rallied since March, and the dollar has tumbled, as prospects for an economic recovery have made investors more willing to take risks. Traders have sold the dollar to invest in U.S. or foreign stocks or commodities such as oil.

On Thursday, said Michael Woolfolk, senior currency strategist at Bank of New York Mellon, there was “a dialing back of risk.”

“People are starting to second-guess the strength of the U.S. recovery, said David Gilmore of Foreign Exchange Analytics in Essex, Conn. “Some are beginning to raise the issue of a double-dip” recession. That occurs when the economy begins to recover briefly from a recession only to be dragged back under.

That sent the dollar higher. In afternoon trading in New York, the 16-nation euro dropped to $1.4865 from $1.4940 and the British pound slid to $1.6617 from $1.6718. The dollar slipped to 88.74 Japanese yen from 89.48 yen.

Some analysts said Thursday’s trading could be a sign that investors are realizing they had become overconfident about an economic rebound.

“We had thought for some time that the markets were running ahead of the fundamentals in terms of how confident they should be about a global recovery,” said Nigel Gault, an economist at IHS Global Insight, a private economic forecasting firm.

Gault said the next major move for the dollar could be to climb higher by the middle of next year as a stronger economy leads the Federal Reserve to begin to boost U.S. interest rates.

The dollar isn’t expected to strengthen against all currencies next year. Gault predicted it would weaken against the Chinese yuan and the currencies of other emerging market countries such as Thailand and South Korea.

These nations have been making moves to keep their currencies from rising against the U.S. dollar because they compete in global markets against Chinese goods. A lower currency makes a nation’s goods cheaper for foreigners to buy.

China in mid-2008 stopped letting its currency’s value rise against the dollar after the global economic crisis began to cut into Chinese exports.

That action has angered American manufacturers and U.S. lawmakers. They say it shows China is violating global trade rules to manipulate its currency to gain trade advantages. A stronger yuan and a weaker dollar would boost sales of U.S. products in China and make Chinese goods more expensive for American consumers.

Treasury Secretary Timothy Geithner faced criticism from members of Congress on Thursday that President Barack Obama didn’t take a harder line against China on the currency issue in his discussions this week in Beijing.

“Today, millions of Americans are out of work because the Chinese are manipulating their currency,” Sen. Charles Schumer, D-N.Y., told Geithner during a hearing by the congressional Joint Economic Committee.

Schumer and Sen. Lindsey Graham, R-S.C., sent a letter urging the administration to launch a Commerce Department investigation into China’s currency practices. They favor imposing penalty tariffs on Chinese imports if Beijing doesn’t change its currency policy.

Geithner told Schumer that Chinese officials have indicated they plan to allow the yuan’s value to eventually be set by market forces. He predicted China would soon resume allowing the yuan to rise against the dollar. Many private economists also expect that to occur by next spring, once the Chinese are more confident about a global economic rebound.

In trading Thursday, the dollar was up 2 percent against the New Zealand dollar and 1 percent against the Australian dollar. Currency analysts use the “kiwi” and the “Aussie” as barometers of traders’ appetite for risky bets. They tend to rise in tandem with stocks.

The dollar also gained as the government said jobless claims for the newly unemployed remained elevated. Another report showed more homeowners with good credit sinking into foreclosure.

Some economists questioned whether there has been a fundamental change in investor views on the dollar.

“The dollar will remain weak in the first quarter of 2010. The factors that have weighed on the dollar are still in place,” said Meg Browne of Brown Brothers Harriman in New York.

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Arbel reported from New York.