Dollar climbs against rivals
Investors seek shelter in U.S. currency as the economic outlook remains grim despite improved readings Friday.
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NEW YORK (Reuters) -- The dollar and yen rose Friday as worries persisted about global economic prospects despite a batch of better-than-expected U.S. economic data, prompting investors to seek shelter in these two currencies.
Data showing a rise in a key manufacturing gauge for the New York area in May and a net inflow of capital into the United States in March after outflows the previous month increased growth expectations.
But currency investors stayed wary, discouraged by reports showing the euro-zone economy contracted at its fastest pace on record as they remained inclined to buy the dollar and yen. Both currencies typically rise when investors turn risk averse and slip when risk appetite improves.
"Overall risk appetite is still down because of the bad numbers from Europe," said Matthew Strauss, senior currency strategist at RBC Capital, in Toronto. "The data out of the U.S. were positive for growth, but they're second-tier reports and their impact is not likely to be sustained for the rest of the day."
In midday New York trading, the euro fell 0.4% to $1.3581 . The euro also was down 1.2% against the yen at 129.11 yen after sliding to a two-week low around 128.40 earlier, Reuters data show.
The single euro-zone currency was well on track for its biggest weekly loss against the yen since late January.
The euro's losses were earlier triggered by data showing the euro-zone economy shrank 2.5% in the first quarter from the previous quarter and 4.6% from the same period a year ago, driven by a plunge in German output.
"While we all know this (report) is backward-looking data, it's first and foremost a pretty lousy health check on European activity," said Andrew Wilkinson, senior market analyst at Interactive Brokers, in Stamford, Connecticut. "Today's data pulls the rug from the recent euro recovery story."
The dollar dropped 0.9% to 95.08 yen, having hit a two-month low of 94.78 yen on trading platform EBS. A close below the 100-day moving average of 95.14 yen will be the first for three months, according to Reuters charts.
Dollar/yen was also on pace for its steepest weekly decline since its collapse late in October.
Analysts said the yen's outperformance suggests the recent evidence of Japanese investors looking toward their domestic markets is now translating into yen strength.
In interviews with Reuters late last month, many of the top nine Japanese life insurers said they would increase their holdings of yen bonds as uncertainty about a global economy deep in recession leaves them in defensive mode.
More positive data for the U.S. economy such as a modest drop in industrial production for April and a rise in consumer confidence supported U.S. equities and helped trim gains in the dollar and yen.
But these were not enough to shake the market's bearish stance on risky trades in higher-yielding currencies such as Australian and New Zealand dollars, which posted sharp losses on Friday. The Australian dollar fell 0.6% to $0.7554 , while the New Zealand dollar plunged 1.2% to $0.5895. 
