Dollar up on Europe’s debt, growth problems; drop in US consumer confidence curbs risky bets

Dollar gains on European debt, growth problems

NEW YORK — The dollar rose Tuesday as worries about European debt levels and a drop in U.S. consumer confidence boosted the safe-haven appeal of the U.S. currency.

In late trading in New York, the 16-nation euro dropped to $1.3523 from $1.3608 late Monday, while the British pound fell to $1.5444 from $1.5489.

The dollar is rising against European currencies because of the stronger American recovery — even as high unemployment persists — and the prospect that U.S. interest rates will be increased before those in Europe rise.

Federal Reserve Chairman Ben Bernanke is testifying later this week, and investors will watch for hints on timing for a boost to the benchmark federal funds rate after last week’s hike in the discount rate on emergency loans to banks.

Tightening U.S. credit tends to boost the dollar. Higher interest rates can make dollar-denominated investments yield higher returns, prompting investors to transfer funds.

Debt problems of Greece and other European countries, and the chance of government defaults, will continue to drive the euro lower, analysts say, weakening its appeal as an alternative reserve currency. The dollar remains the world’s premier reserve currency.

A survey on the German business climate declined in January for the first time in nearly a year, reinforcing worries about growth, while a Bank of England official warned about risks to the U.K. recovery. Britain and the 16 countries that use the euro both grew a meager 0.1 percent in the fourth quarter of 2009 — while the U.S. economy soared 5.7 percent.

The dollar also got a boost alongside Treasury prices after the Conference Board said its consumer confidence index dropped steeply in February, raising concerns about the strength of the U.S. shopper and the American recovery. The Japanese yen, another “safe” currency, soared. The dollar fell to 90.18 yen from 91.18 yen late Monday in New York.

In other Tuesday trading, the dollar rose to 1.0557 Canadian dollars from 1.0417 Canadian dollars, and climbed to 1.0828 Swiss francs from 1.0758 francs.

The dollar was also sharply higher versus currencies from countries that are big commodity exporters, such as the Australian and New Zealand dollars and the Brazilian real, as energy prices tumbled.