Dollar, yen rise as global risk appetite falters

The dollar rose against the Euro while the yen gained in the vulnerable trading on Friday. This came as financial distress and economic weakness beyond the United States continue.

The weakness in the stock market has supported the yen against the dollar and euro as investors unwind trades funded using the Japanese unit’s low rates.

Investors worry about the data that showed the decrease of US consumer sentiment and housing construction that rose fear that the credit crisis had knocked the economy into recession.

Trading was uneven and liquidity was thin even though with fast rises and falls in the US stock market driving currency prices moves.

Investors still are worried about the cost to the real economy from a credit crisis that has been persistent for more than one year. This comes though governments worldwide have started giving cash in troubled banks to help lessen the cost of interbank borrowing.

"The dollar continues to have a bid tone, because risk aversion and the deliberating that's been going on are still alive," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.

In late afternoon trading, the euro was down half a percent at $1.3422. The euro fell 0.5 percent to 136.29 yen.

The dollar was off to its lows against the yen but remained down at 101.54 yen Sterling fell 0.1 percent to $1.7299.

Economic trouble due to decline of consumer confidence

On Friday, US consumer confidence had its steepest monthly decline this October while new home construction last month hit a 17-year low as reports detailing drops in retail sales and industrial output was shown.

Signs of trouble also emerged in economies in Eastern Europe and Asia, while investors expect slower euro zone growth to force the European Central Bank to cut interest rates again by year end.

"I'd characterize recent U.S. data as dismal, but no matter how bad things get here, the global picture looks just as bad," and that will support the dollar and the yen, said Omer Esiner, senior currency analyst at Ruesch International in Washington.

For the next couple of weeks, currency investors will continue to monitor developments in the credit and stock markets.