Dollar drops to three-month low vs euro on soft US data

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The dollar fell to a three-month low against the euro on Friday, as disappointing data on U.S. domestic factory activity and consumer sentiment spurred doubts about the recovery in the world's largest economy.

Against a basket of six major currencies, the dollar fell for a fifth straight week, the longest stretch of declines in four years. The dollar index was last down 0.3 percent at 93.204.

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"The weak U.S. data has put a damper on hopes for a September rate hike, and with that, the U.S. dollar's upward momentum will need much more in order to resume," said Adam Munguia, foreign exchange advisor, at Bank of the West in San Ramon, California.

On Friday, data on New York state manufacturing and readings on industrial output fell short of expectations, while a private gauge on U.S. consumer sentiment unexpectedly fell to its lowest in seven months in early May.

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This down shift in the U.S. economy has helped stem a global bond market rout that narrowed the yield gap between Bunds and U.S. Treasuries and helped revive the euro.

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The gap between 10-year Bunds and Treasuries narrowed to 153 basis points, from around 180 bps about a month ago, making the euro more attractive to investors.

In late trading, the euro rose 0.4 percent to $1.1455 , after earlier hitting a three-month peak of $1.1466. It was about 9 percent higher than a 12-year low of $1.0457 reached on March 16. That was the day the European Central Bank embarked on its 1.1 trillion euro bond-buying program, to which President Mario Draghi reiterated his commitment on Thursday.

The euro's rebound was partly helped by improved euro zone data and rising inflation expectations.

On the other hand, dollar bulls have been disappointed by a recent spate of U.S. data. First-quarter growth has been lackluster and there has been little evidence of a rebound in the second quarter.

Against the yen, the dollar was up 0.1 percent at 119.31 yen , shaving its weekly loss to 0.5 percent.

The was down 0.2 percent at $1.5738, leaving it with a weekly gain of 1.8 percent.

The Aussie dollar fell 0.5 percent to US$0.8038 after hitting a near four-month high of US$0.8164 on Thursday.

Ruble gains despite central bank action

The Russian ruble edged up against the dollar and euro on Friday, after falling the previous day when the central bank announced it had started buying foreign currency to replenish its reserves.

The ruble was up 1.32 percent against the dollar, and last traded at 49.37 ruble. The Russian currency rose 1.05 percent against the euro to trade at 56.51.

The ruble fell sharply on Thursday in response to the central bank's decision to purchase $100-200 million in foreign currency each day, a sign it thinks the ruble has strengthened enough.

On Friday, the central bank said it had purchased $181 million in foreign currency on May 13, the first day of these interventions.

Analysts said on Friday that although the central bank's announcement had been negative for the ruble, the market reaction was proving relatively muted.

"It's worth noting how the pressure on the rouble has exhausted itself," senior Forex Club analyst Alena Afanasieva said in a note.

"Investors began to sell the Russian currency as a reflex reaction, but after analyzing the situation more deeply came to the conclusion that in fact replenishing reserves will serve to stabilize the Russia economy." contributed to this report.