The dollar climbed towards a six-month high against the euro on Tuesday before the German Ifo survey of business sentiment, with investors seeking clues on whether the euro zone economy is hurting enough for a cut in interest rates. The US currency jumped against the Australian and New Zealand dollars as renewed jitters about the financial sector, highlighted by the ninth US bank failure this year, prompted market players to trim carry trades.
The Aussie hit a seven-month low against the dollar, extending its slide as the drop in global stocks prompted investors to cut back on carry trades by selling higher-yielding currencies and buying back the low-yielding yen. Japan's Nikkei average lost 0.7 percent.
Signs of a broadening global economic slowdown have given the dollar a boost in the past month as investors have dumped the currencies of economies losing steam, such as the euro and Aussie, as well as commodities.
The pound slipped back near a two-year low struck the previous day after data last week showed British economic growth stalling in the second quarter, stoking expectations for the Bank of England to trim interest rates. Sterling dipped 0.4 percent from late US trade to $1.8453, back near the two-year trough of $1.8405 struck on Monday.
Traders said the beleaguered pound may win a reprieve if the Ifo survey throws the attention back on the euro zone's economic woes. The Ifo is forecast to slip to 97.1 in August from 97.5 the previous month. British financial markets will reopen later in the day after being closed on Monday for a bank holiday.
The dollar rose around 0.4 percent to 109.68 yen, holding up even though most other major currencies slid against the yen. The euro fell 0.3 percent to $1.4707, skidding back towards the six-month low of $1.4630 hit last week. Market players said sterling remained a key market mover.
The Aussie fell to a seven-month low of $0.8564, as investors sold riskier assets and high-yielding currencies on renewed credit woes, and has now lost 15 percent against the dollar since striking a 25-year high in July. The kiwi slid more than 1 percent to $0.6964 after data showed that New Zealand posted its highest monthly trade deficit in 11 months in July.
The yen was up broadly on the unwind in carry trades, although traders noted that the Japanese currency does not respond as sharply to the moves in stocks as it did earlier in the year when any sharp equity slide would send the yen flying higher. The pound touched a three-month low of 201.67 yen before inching back to 202.36 yen. The Aussie retreated about 0.2 percent to 94.22 yen, not far from a four-month low struck earlier in the month.
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