Dollar Trades Near 4-Week High on Concern U.S. Slump Deepening

April 16 (Bloomberg) -- The dollar traded near a four-week high against the euro before U.S. reports that may show the recession is worsening in the world’s largest economy, boosting demand for the relative safety of the U.S. currency.

The euro traded near a two-week low versus the yen on concern a European Union report today will show the region’s industrial production dropped by the most on record in February, supporting the case for policy makers to lower borrowing costs. The yen rose against New Zealand’s dollar on speculation the global slump will deepen, spurring investors to reduce holdings of higher-yielding assets.

“There are lingering concerns that economies worldwide will take time to emerge from recession,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The dollar is perceived as a ‘safe-haven’ currency and we may see some buying.”

The dollar traded at $1.3234 per euro at 9:15 a.m. in Tokyo from $1.3227 in New York yesterday. It reached $1.3090 on April 10, the highest level since March 18. The greenback was at 99.36 yen from 99.37 yen.

The euro bought 131.46 yen from 131.44 yen in New York yesterday, when it touched 129.93 yen, the weakest since April 1. Europe’s currency was at 88.10 British pence from 88.18 pence. Against the yen, New Zealand’s dollar fell 0.6 percent to 57.40.

U.S. Economic Reports

U.S. builders started construction last month on an annualized 540,000 homes, fewer than the 583,000 reported in February, economists in a Bloomberg survey said before the Commerce Department’s report today. Initial jobless claims probably rose to 660,000 in the week ended April 11, a Labor Department report is forecast to show.

Industrial output in the U.S. fell 1.5 percent in March, matching February’s decrease, the Federal Reserve said yesterday. The median forecast of 76 economists surveyed by Bloomberg was for a 0.9 percent decline.

“Worries about the global economy are escalating, hurting investor confidence,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “We’d expect ‘safe- haven’ demand to underpin the dollar and weigh on yen crosses like the euro-yen.”

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was at 84.858 from 85.081 yesterday.

The euro may weaken for a third day against the dollar as economists estimate the European Union’s statistics office in Luxembourg will say today that industrial production fell 18 percent in February from a year earlier, the biggest decline since the data series began in 1986.

Investors Raise Bets

Investors raised bets that the ECB will reduce rates at its May 7 meeting. The yield on the three-month Euribor interest- rate futures contract for May delivery fell to 1.285 percent yesterday from 1.305 percent on April 14.

Benchmark interest rates are 1.25 percent in the euro area and 3 percent in Australia and in New Zealand, making assets in the 16-nation region and the South Pacific nations attractive to international investors seeking higher returns. Japan’s benchmark borrowing cost is 0.1 percent and the U.S. rate is between zero and 0.25 percent.

The yen may gain on speculation a Chinese report today will show the nation’s economy expanded at the slowest pace in nine years in the first quarter, boosting demand for Japan’s currency as a refuge.

Gross domestic product grew 6.2 percent in the first quarter from a year earlier, the least since December 1999, according to a Bloomberg News survey of economists. China’s statistics bureau will release the report today in Beijing.

U.S. Treasury Secretary Timothy Geithner yesterday refrained from labeling China as a currency manipulator in the department’s first semiannual report on foreign-exchange policies since he became secretary. He backtracked from an assertion he made during his confirmation hearings in January.

China’s yuan closed at 6.8322 per dollar in Shanghai yesterday, from 6.8320 on April 14, according to the China Foreign Exchange Trade System.