The US dollar rose to a five-week high against major currencies on Friday as renewed worries about possible euro zone sovereign debt restructuring continued to drive a broad pullback from risky trades in commodities, stocks, and high-yielding currencies.
-- Euro posts worst 2-week performance in a year
-- ECB's Trichet says inflation at peak
The euro fell against most currencies, dropping to a six-week lows against the dollar and the yen on renewed concerns Greece may restructure its debt. European Central bank President Jean-Claude Trichet also contributed to the euro fall as he dampened expectations about a interest rate rises in the euro zone by saying that inflation was at it's peak.
"This is a risk-asset unwinding story.. The real driver seems to be a growing sense that the strength of the global recovery is diminishing," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. Dolan cited weakness in industrial production and retail sales numbers in the major economies, including the United States and China.
In late trading, the ICE Futures' dollar index rose as high as 75.949, the highest since April 5, before closing at 75.811, up 0.8 percent. The euro closed down about 1.0 percent at $1.4097, after hitting a session low at $1.40650 on trading platform EBS. Over the last two weeks, the euro has declined 7.3 percent, its weakest showing since mid-May last year.
A meeting of Eurogroup finance ministers, followed by an Ecofin meeting of EU finance ministers on Monday, could provide further direction for the euro. "The better tone of the dollar has coincided with the latest bout of negative pressure on the euro," said Jane Foley, senior currency strategist at Rabobank in London.
"The conclusion that Greece will be forced into a default sooner or later if there is no further support from the EU/IMF had become increasingly widespread." German publication Die Welt reported on Friday that the European Union and International Monetary Fund are ready to agree to a restructuring of Greek debt, news that further undermined the euro.
The euro did gain earlier, hitting session peaks above $1.43 after strong first-quarter GDP data from the euro zone's biggest economies, Germany and France, prompted demand from Asian sovereign names, and European leveraged and unleveraged accounts.
The better-than-expected euro zone economic data bolstered expectations that European interest rates will remain higher than their US equivalents. By contrast a report showed US consumer prices rose as expected in April, giving little sign of a broader pick-up in inflation that would trouble the Federal Reserve. In other currencies, weakness in commodities drove declines in commodity-linked currencies. The Australian dollar fell 1.1 percent to US $1.0558, while the New Zealand currency sank 1.2 percent to US $0.7860.