NEW YORK, Oct 31 (Reuters) - The U.S. dollar and yen posted sharp gains on Friday as investors turned more cautious after bleak U.S. 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.
Financial markets took little comfort from the Bank of Japan's interest rate cut, the latest monetary policy initiative after central banks in the United States, China, and other countries lowered rates this week to stem the negative impact of the credit crisis on their respective economies.
