The dollar rose against the other major currencies but not the yen or the Swiss franc, making investors scurry to find safety in other forms during this time of downbeat economic data that is sweeping the globe. The dollar index was up 0.2% against all the other currencies but fell 2.5% against the yen as did the euro, down 0.5%. The British pound sterling also dropped 3.5% after hitting a mid-day low of $1.4805. The yen usually rises when risk appetites fall as it has been. Traders often buy low-yielding currencies to pare the bets on the higher-yielding ones they hold. Like the yen, the Swiss franc is a low-yielding currency and it also rose against the dollar.

The currencies moved after manufacturing gauges in the United States, China, Great Britain and the euro zone dropped significantly. The Chinese and British gauges registered record lows while the manufacturing activity in the United States declined at its fastest pace in 26 years during November. The report was released by the Institute for Supply Management (ISM). The ISM index itself fell 36.2% in November, registering the lowest reading since 1982. Usually when the ISM falls below 50% it is an indication that firms are reporting conditions that are worsening and not getting better.

Ben Bernanke, the Federal Reserve Chairman, spoke to the Dallas Fed conference on December 1, 2008, about the economic outlook and Treasury Secretary Henry Paulson is gearing up to give an update on the U.S. economy and markets. According to currency strategists at Brown Brothers Harriman, “At the start of December, the relationship between the low-yielding yen, Swiss franc and U.S. dollar has tightened again due to economic weakness. Today’s dreadful economic data from China to Germany, the U.K. and Sweden and evidence of a further deterioration in U.S. data today, are helping to fuel talk of more aggressive policy action ahead of this week’s central bank meetings.” Additionally, the European Central Bank and the Bank of England are expected to cut interest rates even further when they have their policy meeting on Thursday, December 4, 2008.

The Chinese Yuan also suffered a record loss against the dollar, dropping to the lower end of its daily trading limit. Analysts believe that a policy shift is in effect as authorities let the currency depreciate against the greenback in hopes to bolster the flagging Chinese economy. A gauge of the Chinese manufacturing activity in November alone showed the sharpest drop in the history of the marketing survey that was compiled by CLSA Asia-Pacific Market. The survey was started in 2004. Additionally, the Purchasing Managers Index also fell to 40.9 in November from 45.2, also showing a decline for the fourth month alone.