The dollar tumbled broadly on Friday after data showing a record US trade deficit in June cast fresh doubts on the economy's recovery and its ability to draw foreign capital to fund the growing gap.
Commerce Department data showed that the deficit widened to a record $55.8 billion in June, defying expectations for a slight widening to $47.0 billion, as exports dropped and imports rose.
"It's absolutely stunning the number is that high. We've imported a ton of stuff," said Greg Anderson, currency strategist at ABN Amro in Chicago. "It makes it much more difficult to have any argument other than (a) weaker dollar going forward."
The size of the deficit makes it more difficult to attract sufficient foreign capital required to close that gap, analysts say. With equity inflows into the US in recent months looking fragile, the dollar could weaken still further.
Foreign investors sharply slowed the pace of their investment in the United States in May. Net capital inflows totaled $56.4 billion, down from $76.0 billion in April.
Capital flows data for June due from the Treasury next Monday will be particularly closely watched, especially in the wake of Friday's dismal trade numbers, said Alex Beuzelin, senior strategist at Ruesch International in Washington, D.C.
"The trade issues are so bad (they are) raising concerns about funding the current account deficit and that could take the dollar down into a new trading range," said John McCarthy, director of foreign exchange at ING Capital Markets LLC in New York.
A sustained push taking the euro well above $1.2400 could enable the euro zone's single currency to rise as high as $1.2800, McCarthy said.
Late in New York, the euro was up 1.0 percent at $1.2373 after trading in negative territory at the start of US trading. The dollar was down 0.1 percent against the Japanese currency at 110.67 yen.
The dollar fell 1.4 percent to 1.2385 Swiss francs and weakened 1.6 percent to Canadian $1.3089. Sterling gained 1.2 percent to $1.8436.
The dollar also slipped in the wake of a report from the University of Michigan showing a decline in US consumer sentiment. The preliminary reading of its August sentiment index was 94.0, compared with July's reading of 96.7. Forecasts had called for the August reading to reach 97.5 in August.
"The University of Michigan was certainly a disappointment," said Hugh Walsh, vice president of foreign exchange at Fortis Bank in New York. "Consumer sentiment (data) is not a really good sign for the economy. Because of that, I think the dollar is suffering."
With about $4 billion US Treasury coupons due on Monday, it is likely that most of the Japanese accounts that will be paid in dollars will switch part of that to euros, triggering fresh euro demand, one dealer in New York said.
Other US data reported on Friday showed US producer prices rose less than expected in July. The producer price index was up 0.1 percent, compared with a 0.3 percent decline in June. Excluding food and energy prices, the PPI rose 0.1 percent. The index had been expected to rise 0.2 percent with the core PPI forecast to be up 0.1 percent.
The Fed has said it expects any inflationary pressure that has been built into the pipeline to decline in coming months as the price of oil should ease from its current record high.
Crude oil prices in the United States rose above $46 per barrel on the New York Mercantile Exchange for the first time in the 21 years oil futures have traded on the exchange.
Earlier in the global day, the dollar hit a two-week high against the yen as surprisingly weak Japanese growth data cast doubt on the health of the world's second-largest economy.
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