WORLD FOREX: Growth-Sensitive Currencies Drop; Euro Crisis Weighs

By Bradley Davis Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The euro-zone's spreading debt crisis teamed with worse-than-expected U.S. data Thursday to lead investors strongly out of currencies closely aligned with global growth.




Worry that the euro-zone crisis will stymie the global recovery sent the commodity-backed bloc of currencies sharply lower, with the Australian dollar plummeting more than 3.5% against the greenback and the Canadian dollar dropping more than 2.5%.



The euro fell sharply against the yen, dropping to a 9.5-year low under Y110, after talk of intervention to stem the common currency's rapid decline was increasingly seen as far-fetched. A nearly 3% plunge in U.S. stocks helped speed the euro's decline, with the common currency dipping under $1.23.



The dollar and yen took most advantage of souring investor sentiment, with investors strongly favoring the perceived safe harbors over currencies considered riskier, such as emerging market currencies like the Brazilian real, against which the dollar gained more than 3% by mid-morning trading.



Adding to negative market sentiment was a disappointing reading for U.S. weekly jobless claims and a drop for the first time since March 2009 in the index of leading U.S. economic indicators.



Thursday mid-morning, the euro was at $1.2334 from $1.2391 late Wednesday, according to EBS via CQG. The dollar was at Y89.58 from Y91.54, while the euro was at Y110.47 from Y113.41. The U.K. pound was at $1.4268 from $1.4415. The dollar was at CHF1.1522 from CHF1.1517.



The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 86.609 from 86.276.



"Initially, the market was fearing the ramifications on [the euro] and the currency became the cleanest way to play a negative euro-zone view," Camilla Sutton, currency strategist at Scotia Bank in Toronto said of the escalating debt crisis. "However, as the situation has escalated and austerity measures increase, the fear has shifted to the ramification for global growth," she said.



Accordingly, currencies most tied to global growth, such as the Australian dollar, have come under "tremendous pressure," Sutton said.



Those growth-sensitive currencies also have been hammered by declining commodity prices and concerns that China will put an additional brake on its growing economy, which analysts worry could put the global recovery at risk.



The euro surrendered its day-earlier rally as market chatter that led some investors to believe coordinated central bank intervention could stem the euro's rapid decline was considered increasingly unlikely after comments from a euro-zone official that noted the common currency's speeding decline, but suggested intervention was off the table.



Meanwhile, investors waited to see whether other euro-zone countries would follow Germany's ban on certain types of speculative investments, with the uncertainty weighing on the euro, analysts said.



"The fact that [Germany's ban] has not been followed by other euro-zone members confirms uncoordinated policy responses to the current crisis and can only prove detrimental," said currency strategists at Brown Brothers Harriman. "In fact, throughout this crisis, the euro zone's uncoordinated and sometimes unorganized responses are as much to blame as the actual crisis situation," for the euro's nearly 15% fall since the beginning of the year.



Eurogroup Chairman and Prime Minister of Luxembourg Jean-Claude Juncker voiced concern Thursday about the euro's recent rapid decline, but acknowledged some benefits from the weaker currency and said he sees little need for European policy makers to act right away to defend it.



"I'm really concerned about the rapid (pace) of the fall of the exchange rate," he told reporters at the Japanese Ministry of Finance following a one-on-one meeting with Finance Minister Naoto Kan. But Juncker added that "I don't think that this is a matter [requiring] immediate action."



The comments may add to the view among some market participants that euro-zone authorities will tolerate a weaker euro so long as its declines are not abrupt. A weaker currency helps the region's export-driven economies at a time when austerity measures to cut debt threaten to crimp fragile recoveries.



-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com



(Takashi Nakamichi and Andrew Monahan in Tokyo contributed to this article.)