Dollar strengthens, euro drops to seven-week low on sovereign debt crisis

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The dollar climbed against most major peers, extending this week’s gains, as investors sought the safest assets on concern economies in the euro area will worsen as leaders struggle to halt the region’s debt crisis.

The euro dropped to a seven-week low against the greenback as Italy prepares to sell bills today after the country’s two- year yield soared to a 14-year high yesterday. Australia’s dollar was set for a fourth week of declines as Asian stocks fell after German Chancellor Angela Merkel’s rejection of joint euro bonds damped optimism about a potential remedy for the region’s woes. The dollar rose against the yen before a U.S. report next week forecast to show consumer confidence improved.

“Risk sentiment is still pretty poor as there doesn’t seem to be one clear solution that will be swift for Europe,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The U.S. dollar would get some support in this environment particularly, as the euro is out of favor.”

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