Dollar Falls on Weak Trade Deficit, Consumer Data

The dollar fell across the board Friday after unexpectedly weak trade deficit and consumer sentiment figures stoked worries about the outlook for a U.S. economic recovery.

Gains in the U.S. stock market also helped boost risk appetite, pressuring the safe-haven greenback and lifting the euro and higher-yielding currencies such as the Australian and New Zealand dollars.

The U.S. trade gap widened by much more than expected in September, while consumer sentiment fell in early November to the weakest in three months. Analysts say the data should bolster the view the Federal Reserve will stay on hold for the foreseeable future.

"There is increasing evidence that the recovery in the U.S. is much more vulnerable than previously thought which provides another reason for traders to bail out of U.S. dollars," said Kathy Lien, director of currency research at GFT Forex in New York.

"The Federal Reserve has all the right reasons to (keep) monetary policy easy for a very long time," she added.

The euro rose to near $1.48 and hit a session peak of $1.4901, according to Reuters data.

Nick Ut / ASSOCIATED PRESS

Adding to strength in the euro was news that the euro zone economy had pulled out of recession in the third quarter, although the 0.4 percent rise was slightly less than markets had expected.

The dollar fell 1 percent to about 89 yen , after slipping as low as 89.47, according to Reuters data. The euro was down at around 133 yen .

Trade Deficit Widens

The ICE Futures U.S. dollar index, a gauge of the greenback against six other major currencies, was down at around 75, above a recent 15-month low of 74.774.

Analysts say the greenback remains within a well-defined downtrend channel that stretches back to May and is likely to fall further into the year-end as risk appetite increases.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for November fell to 66.0, the lowest since August and well below economists' median expectation of 71.0, from 70.6 in October.

A separate report showed the U.S. trade deficit widened in September by an unexpectedly large 18.2 percent, the most in more than 10 years, as oil prices rose for the seventh straight month and imports from China increased.

The fact that the U.S. 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."

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.

The Australian dollar jumped about 1 percent to near US$0.93 and the New Zealand dollar rallied to about US$0.74.

Currency markets will also be following 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.

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