Dollar rises on recession fears
Investors seek the safety of U.S. currency as the global slowdown continues to spark recession fears.
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NEW YORK (CNNMoney.com) -- The dollar resumed its climb against other major currencies for a second day in a row Tuesday as recession fears took center stage.
The U.S. currency also got a boost against the 15-nation euro on bets that the European Central Bank will have to cut rates again before the year ends.
"The markets are actually pricing in a 50 basis point cut in December," said Kathy Lien director of currency research at Global Forex Trading in New York. "The euro-zone economy is still in a lot of trouble," she added.
The ECB, which currently has its key interest rate at 3.25%, is scheduled to meet on Dec. 20 to make a decision on interest rates.
The euro, which initially rallied following some upbeat news about German economic sentiment, fell 2.3 cents to $1.252 by the end of trading in New York Tuesday.
The dollar also rose against the British pound, which fell 2.3 cents to $1.538. But the greenback lost ground against the Japanese yen, falling ¥0.35 to ¥97.65.
"Right now the dollar is not trading on U.S. fundamentals, it's trading on risk aversion," said Lien.
Over the past several weeks, investors have been looking to the equities markets, which are considered forward-looking indicators, for guidance on the state of the global economy and the possibility of a deep recession.
World markets: Investors sought safety as economic instability continued to rumble through global equities. In the United States, the Dow Jones industrial average fell nearly 3% as U.S. automakers floundered, overshadowed by the possibility of a government intervention.
Markets in Asia and Europe also weakened, with indexes falling more than 3% in the U.K. and Japan, and more than 4% in France, Germany and Hong Kong.
While an index of German business sentiment showed a modest recovery, the reading is still negative and well below it's historic norm.
"The oncoming global recession is too large," said John Kicklighter, currency strategist with Forex Capital Markets. "The overall [negative] sentiment is too strong," he added.
Chinese stimulus: Meanwhile enthusiasm over the $586 billion Chinese stimulus package announced Sunday faded as investors began to reassess how quickly the plan will have an impact.
"People are still kind of skeptical over what will happen," said Kicklighter.
Unlike the stimulus plan enacted by the U.S., which focused on tax rebates, the Chinese plan focuses on job creation and building infrastructure such as roads and bridges, which may take longer to implement.
Investors were initially encouraged by the Chinese plan, but then began to re-examine its impact since it will be rolled out gradually till 2010, according to Kicklighter.
"It will have a little effect, but it's like trying to stop an oncoming train with a car," he said.
The export-driven Chinese economy continued to show weakness as well, as exports slowed, according to a report from Beijing. 
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