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The dollar was relatively stable on Friday as the rally in US equities fizzled, ending a run of risk appetite that lead the dollar to multi-week lows versus a number of major counterparts.
Rising stocks and renewed hopes that the economy is on the mend have recently led traders to seek riskier higher-yielding assets, with the loonie seeing exceptional gains over the past few weeks.
The safe haven dollar strengthened during the throes of the economic crisis, but has since tailed off due to risk appetite and concerns about government spending.
While Reuters and the University of Michigan released a report on Friday showing an upward revision to their consumer sentiment index for the month of July, the reading still came in well below the previous month.
The report showed that consumer sentiment index for July came in at 66.0 compared to the preliminary reading of 64.6, although it remains below a reading of 70.8 for June. Economists had expected the index to be revised up to 65.0.
Speculation that the Canadian economy is in much better shape than once feared drove the dollar to a new 7-week low of C$1.0830 versus loonie. With the dollar firmed up slightly in afternoon dealing, a move below C$1.0782 seems inevitable, and would take the dollar to its lowest level since October 2008.
Meanwhile, the dollar eased versus the euro, slipping to 1.4220. In the process, the dollar moved back toward yesterday's 7-week low of 1.4290.
German business climate showed a better-than-expected improvement in July, indicating that the biggest Eurozone economy is on the road to recovery, results of a closely watched survey suggested Friday.
Versus the sterling, the dollar was steady near 1.6440, not far from yesterday's multi-week low of 1.6585. On a longer-term basis, the pair is little changed from June 1.
Friday, preliminary data revealed that the UK economy shrunk at a slower pace in the second quarter, though the contraction was severe than economists expected.
The Office for National Statistics reported that the gross domestic product declined 0.8% quarter-on-quarter in the second quarter, after falling 2.4% in the first three months of the year. Economists were looking for a 0.3% contraction.
The dollar saw little movement versus the yen, clinging to most of yesterday's gains. The pair moved just below for most of the day.
There are some signs of recovery in the Japanese economy due to stimulus measures, but rising number of unemployed may risk the revival, the Cabinet Office said Friday.
According to the fiscal 2009 white paper on the economy and government finances, the world's second largest economy is still facing downside risks like, deflation, unemployment and slowdown in overseas economies.
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