The dollar recovered some of the week's losses on Friday, as news of a large quarterly loss at Bank of America and flagging consumer confidence dulled investor demand for higher-yielding, higher-risk currencies.
The greenback hit a 14-month low against the euro earlier this week as signs that a global recovery was gaining steam sent investors seeking assets and currencies that promise higher returns than the low-yielding dollar.
But evidence that U.S. consumers and some top U.S. banks are still struggling under a mountain of debt afforded investors a chance on Friday to book profits on the dollar's slide and the attendant rally in stocks and commodities.
In a very short time, we saw stocks and major currencies hit significant highs and the dollar fall to significant lows, said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. The temptation to cover shorts and take profits can be pretty high at a time like this.
The dollar's broad recovery, though modest, was enough to take it further away from the psychologically important $1.50 level per euro and push it above 90 yen. The euro last traded at $1.4894, down 0.4 percent, while the dollar rose 0.4 percent to 90.89 yen.
The yen also slid against other currencies as Japanese investors sought higher returns from foreign fixed-income markets.
Dolan said the rebound probably won't last long, though, as markets expect the Federal Reserve to hold interest rates near zero well into 2010, thus keeping the yield premium on the currency low. I think $1.50 is a foregone conclusion, he said.
The dollar rose 0.3 percent to 1.0183 Swiss francs and 0.4 percent against the Canadian dollar to C$1.0378, off a 15-month low near C$1.02 hit this week.
Sterling rallied for a second straight day, rising 0.5 percent to $1.6354 as traders unwound record large bets against the British currency after a central bank policymaker this week said emergency asset-buying programs were working.
According to data from the Commodity Futures Trading Commission, speculators' short sterling position hit a record high in the week that ended Oct. 13, a few days before the BoE comments.
GROWTH WORRIES PERSIST
Though U.S. interest rates are expected to remain at record lows, investors often buy dollars when confidence in a global recovery flags and they're forced to sell higher-yielding but higher-risk currencies and assets.
Bank of America Corp's (BAC.N) $1 billion quarterly loss, blamed mostly on credit losses on consumer loans, reminded the market that U.S. consumers remain stretched.
So, too, did data showing consumer confidence fell unexpectedly in October, and that tempered an initial burst of optimism sparked by a separate report showing U.S. industrial production rose in September.
Worries about the dollar, which has lost about 7 percent this year against a basket of major currencies, have been amplified by record high U.S. deficits.
That has brought reassurances from policymakers, including Treasury Secretary Timothy Geithner, who told CNBC television Friday the United States must preserve confidence in the dollar.
Dallas Federal Reserve President Richard Fisher said the dollar's performance depends on good policy. [ID:nN16354863]
No policy-maker is going to argue for a weak dollar, Fisher told a conference hosted at Southern Methodist University in Dallas. The question is the long-term trend. The answer, frankly, is let's get it right. Let's pick up our economy, pull up our socks and get on with it, he said. (Additional reporting by Nick Olivari; Editing by Diane Craft)