NEW YORK, Oct 31: The US dollar and yen posted sharp gains on Friday as investors turned more cautious after bleak US economic reports heightened global recession fears.

The dollar, which was on track for its biggest monthly gain against a basket of currencies in more than 17 years, was also boosted by month-end demand from global fund managers seeking to rebalance foreign exchange hedges in their portfolios.

“The market expected poor October data, but the scale of it has reminded the market that even though we are at a phase where the liquidity risk is being priced out, the economic outlook is not particularly appealing,” said Sebastien Galy, a currency strategist at BNP Paribas in New York.

“So it’s the usual theme we’re seeing today -- whenever the data is poor, we see the dollar strengthening relative to the euro and commodity currencies. We are still in a very elevated level of risk aversion.”

Investors were unconvinced a 20 basis point rate cut by the BoJ would do much to avoid a slowdown in the Japanese economy.

In midday New York trading, the euro was down 1.6 per cent against the dollar at $1.2698. —Reuters