The euro fell for a third day versus the dollar on concerns the harsh fiscal tightening in Europe would lead to slower growth of euro-zone's economy. Weakness in US stocks also hurt market sentiment and pressured euro as DJI ended the day down 1.05%. Despite intra-day brief recovery to 1.2685 in European morning in thin trading conditions as many European countries were off for Ascension Day holiday, euro later fell sharply to 1.2540 in NY morning. Although euro then managed a minor recovery, renewed selling at 1.2597 pushed the single currency close to its last week's 14-month low of 1.2510 before stablising. In other news, report showed Greece would submit a deficit-cutting progress report to EU this coming Saturday. Earlier, Portugal lowered its budget-deficit goal for 2011 to 4.6 percent and approved tax increases and spending cuts.

Although the British pound edged higher to 1.4917 at London opening on short-covering, cable retreated sharply from there and intra-day decline picked up downward momentum after the release of wider-than-expected U.K. trade deficit, which came in at -7.52 billion pounds, the highest trade gap since January, versus the economists' forecast of -6.41 billion and revised -6.30 billion in February. Cross-selling in the pound especially versus euro also weighed on cable as eur/gbp rose sharply from 0.8498 to 0.8594. Sterling eventually tanked to as low as 1.4593 in NY afternoon.

Versus the Japanese yen, the greenback moved narrowly in Asia and then rose sharply to 93.65 in European morning. However, the pair swiftly retreated from there and tumbled to 92.59 in NY mid-day. In other news, Minneapolis Federal Reserve President Narayana Kocherlakota said the Fed would raise interest rates if economic conditions change appropriately.

On economic front, U.S. jobless claims fell to 444,000 versus economists' forecast of 440,000 in the latest week (May 1 to May 8) from upwardly revised 448,000 in the prior week. U.S. April export price came in at 1.2% m/m  versus 0.4% forecast and April import price came in  0.9% versus 0.8% forecast.

Economic data to be released on Friday include: New Zealand retail sales, U.S. retail sales, capacity utilization, industrial production, University of Michigan survey and business inventories.