The dollar fell broadly on Friday after data showing a wider US trade deficit and weaker consumer sentiment reinforced views that the United States may return to economic health more slowly than other countries. A brighter outlook abroad, including a report showing the euro zone may have exited recession in the third quarter, boosted the euro and also encouraged investors to buy stocks and high-yielding currencies such as the Australian dollar.
The dollar ended the week down about 0.5 percent against a basket of major currencies, its fourth weekly decline in the last five weeks. News that the US trade gap was at its widest in September in more than a decade worried investors on Friday. A separate report showed a grim job outlook left consumers in their worst mood in three months in November, supporting expectations that US interest rates will remain near zero for a long time.
"There is increasing evidence that the US recovery is much more vulnerable than previously thought, which provides another reason for traders to bail out of US dollars," said Kathy Lien, director of FX research at GFT Forex in New York.
The euro was up 0.5 percent at $1.4919, nearly a cent above the day's low. It neared a 2009 high around $1.5060 earlier this week. The dollar fell 0.8 percent to 89.64 yen and the euro shed 0.3 percent to 133.73 yen. Traders said yen gains were partly driven by Finance Minister Hirohisa Fujii's saying he was less worried about Japanese government bonds and budget requests for the next fiscal year.
Wall Street stocks rose and investors also bought relatively high-yield currencies such as the Australian dollar, up 1.2 percent to $0.9338, and the New Zealand dollar, 1.6 percent stronger at $0.7436. Sterling rose 0.7 percent at $1.6689 and the dollar fell sharply against the Mexican peso and the Brazilian real. With the US jobless rate above 10 percent and the Federal Reserve signalling it's in no rush to lift interest rates, analysts say investors are increasingly borrowing dollars at low rates to finance trades in assets with higher returns.
News that the US trade gap unexpectedly widened by 18.2 percent as imports from China increased and oil prices rose for a seventh straight month in September advanced that view. The fact that the US trade deficit widened "in an environment when the dollar has been very weak" was concerning, said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey.
"If we can't get the trade deficit lower in such circumstances, it's really not good for growth." A weak currency usually decreases imports and boosts exports, improving a country's balance of trade position. Daniel Katzive, currency strategist at Credit Suisse in New York, said the data also suggests that a recovery in the United States is going to "go hand in hand with a larger financing requirement" for the country.
"The United States is going to remain a major importer of capital and that's problematic for the currency when you have very low yields," he added. Currency markets will also be following US President Barack Obama's first official tour of Asia as speculation grew that this could generate pressure on some countries - China in particular - to let their currencies rise.