The dollar sagged against the safe-haven yen and low-yielding euro on Tuesday as weak Chinese factories data drove investors to unwind bets against the two currencies widely used to fund positions in riskier assets. The data showed the manufacturing sector of the world's No 2 economy shrinking at its fastest in three years, aggravating wide worries about world growth and igniting sell-offs in equities. Wall Street's S&P 500 Index was down 1.75 percent in early trading.
Speculators and investors had sold low-yielding currencies to buy higher-yielding ones and shares for better returns, so a worsening outlook for stock markets and the global economy tends to reverse that process. "Most of these hedged positions are over-hedged and they have to buy the currencies," said Mark McCormick, a strategist at Credit Agricole in New York. "We're of the school that you buy the dollar on dips." The dollar fell more than 1 percent to 119.9 yen, having retreated from a high of 121.76 yen set late last week. The euro rose 1 percent to $1.1332, extending its recovery from last week's one-week low of $1.1156. It was last trading at $1.1265, up 0.45 percent on the day.
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