The yen and dollar rose broadly on Tuesday as uncertainty about the global economic outlook and forthcoming US corporate earnings increased the safe-haven appeal of both currencies. Sterling fell as weak industrial output data reinforced doubts about a UK recovery, and the euro retreated, approaching $1.39 after having climbed above $1.40 following data showing a surprise increase in German factory orders.
When risk aversion rises, investors often cut holdings of stocks and higher-yield currencies and buy back the yen and dollars that were used to finance the trades. The dollar fell 0.6 percent at 94.72 yen while the euro fell 1.1 percent to 131.81 yen and 0.4 percent to $1.3914, according to Reuters data. Sterling shed 0.9 percent to $1.6119 as data showed UK manufacturing output fell 0.5 percent in May, confounding expectations for a rise.
"The risk is clearly that the 'green shoots' are turning dry," said Michael Klawitter, senior currency strategist at Dresdner Kleinwort in Frankfurt. The Australian dollar was down 1 percent at $0.7895 after the Reserve Bank of Australia left interest rates at a record low 3 percent on Tuesday and left the door open to more cuts.
Traders are bracing for second-quarter US corporate earnings, which will be released in coming weeks. Analysts said poor results, especially from financial institutions, would likely crank up dollar demand. Analysts were also keeping an eye on this week's Group of Eight leaders summit that starts in Italy on Wednesday. China, Russia and Brazil have said they will push their view that the world needs to start seeking a new global reserve currency as an alternative to the dollar, though they admitted such a shift would take time.
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