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

NEW YORK — The dollar’s appeal as a safe haven sent it higher against other major currencies Thursday after reports on housing and unemployment raised fears the U.S. economy will be weak next year.

But currency market analysts said they did not see a significant dollar rally developing.

On Thursday, the greenback regained, at least momentarily, the role it held during the worst of the financial crisis, giving investors an alternative to risky investments such as stocks and commodities. The stock market has rallied since March, and the dollar has tumbled since then, as hopes for an economic recovery made investors more willing to take on risk.

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 $1.4919 from $1.4940 and the British pound slid to $1.6647 from $1.6718. The dollar slipped to 89.01 Japanese yen from 89.48 yen.

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.

On Wednesday, in an interview with Fox News, President Barack Obama said he’s worried that spending too much government money to help revive the economy could undermine a fragile U.S. recovery and cause a double-dip recession.

Federal Reserve Chairman Ben Bernanke and other Fed officials have pledged to keep U.S. interest rates at their current range near zero for an “extended period.”

On Wednesday, St. Louis Federal Reserve President James Bullard, who will be on the Fed’s rate-setting committee in 2010, said that if the central bank acted as it has done in past recessions, interest rates might not rise until early 2012. He also noted that there was strong criticism of the Fed when it waited a long time to raise rates in the past.

The very low U.S. rates mean that the dollar is extremely cheap to borrow and doesn’t provide high returns for investors, making it a less-popular bet in a recovering economy.

On Thursday, the dollar gained as the government said jobless claims for the newly unemployed remained high. Another report showed more homeowners with good credit sinking into foreclosure. The Conference Board, a private research group, said its forecast of economic activity grew — but analysts said momentum was dropping and the U.S. would have slow, bumpy growth next year.

But one move upward in the dollar doesn’t necessarily herald a return to dollar strength.

“We have not seen a shift in sentiment. The market remains decidedly against the dollar,” Woolfolk said. Traders won’t be seriously interested in buying up greenbacks until the Fed signals it’s ready to start hiking rates, he said.

The U.S. has record low interest rates — most economists think they will remain near zero until about the middle of next year — and record budget deficits. Moreover, on Thursday the Organization for Economic Cooperation and Development doubled its 2010 growth forecast for rich countries to 1.9 percent.

“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.

In other trading Thursday, the dollar gained to 1.0133 Swiss franc from 1.0114 francs and traded up to 1.0626 Canadian dollars from 1.0567 late Wednesday.