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NEW YORK : The US dollar and the yen firmed on Tuesday as investors sought a safe haven in a credit crunch that is roiling financial markets.
The US currency also benefited from monthly government reports on US trade and inflation, traders said.
The euro was undermined by a weaker-than-expected eurozone growth report which diluted prospects that the European Central Bank would raise interest rates from their current level of 4.00 percent.
The euro fell to 1.3532 dollars around 2100 GMT from 1.3608 late Monday in New York. Earlier it had fallen to 1.3529 dollars, its lowest level since early July.
The single European currency slumped to 159.06 yen from 160.86 on Monday, while the dollar fell to 117.55 yen from 118.23.
"Uncertainty, market volatility and hence risk aversion remains evident in the financial markets," said Derek Halpenny, senior currency economist at The
Bank of Tokyo-Mitsubishi in London.
"In the foreign exchange market the main beneficiaries of the turmoil has been the dollar and the yen."
The increased risk aversion among global investors means investors are winding down "carry trades," which have depressed the value of the yen.
In carry trades, for example, investors borrow in yen to take advantage of low interest rates in Japan and use the cash to buy assets in other countries with higher interest rates.
US producer price inflation data released on Tuesday showed a rise of 0.6 percent in July, sharply higher than the 0.1 percent expected, suggesting that the Federal Reserve will be in no position to relax its concern about rising inflationary pressures.
Core prices, which exclude food and energy, were up just 0.1 percent, below the 0.2 percent gain expected.
Elsewhere, data showed that the US trade deficit dropped to a four-month low in June of 58.1 billion dollars, below expectations of a rise to 60.0 billion dollars.
Patrick Fearon, a currency analyst at AG Edwards, said the dollar's recent strength reflects more than Tuesday's trade data.
While some of the boost may have stemmed from safe-haven buying, Fearon said, "the dollar is probably also benefiting from a change in investors' expectations regarding relative interest rates around the world."
The market will focus on Wednesday's monthly data on US consumer prices, a key inflation indicator closely watched by the Federal Reserve, which has made containing inflationary pressures its top priority.
The Fed has held its key rate unchanged at 5.25 percent for 13 months but is under pressure to cut it amid tightening credit.
Meanwhile, the ECB injected more money into the money market on Tuesday to calm liquidity fears linked to the crisis in the US subprime mortgage sector.
ECB president Jean-Claude Trichet assured investors that the problems in the money markets had abated.
The euro faltered after an official report that economic growth in the 13-nation eurozone slowed to a lower-than-expected 0.3 percent in the second quarter, compared with 0.7 percent in the previous three months.
In London, the pound dived after official data showed that Britain's 12-month inflation rate fell by its biggest amount in more than five years during July.
"July's quite stunning UK consumer prices data clearly put a question mark over the likelihood of another rise in UK interest rates over the coming months," said Capital Economics analyst Jonathan Loynes.
In late New York trade, the dollar was at 1.2108 Swiss francs, up from 1.2057 late Monday.
The pound was trading at 1.9963 dollars, down from 2.0116. - AFP/de
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