The dollar declined on Friday as US economic data continued to raise doubts about monetary policy as well as the health of the economy.
A slight dollar bounce in reaction to the concurrent release of reports on the US trade deficit for July and the producer price index last month was quickly usurped by a dollar sell-off.
The deficit wasn't quite as vast as expected, while PPI declined unexpectedly. Both reports ultimately weighed on the US currency. In morning trading following the release of the figures, the euro tested a new range above US$1.2300 after breaking through US$1.2270.
But as trading wound down, the US currency managed to win back some of its intraday losses, primarily due to last-minute positioning ahead of the weekend.
Late Friday, the euro was at US$1.2267, up from US$1.2192 late Thursday. The dollar was at ¥109.55, down from ¥109.81. The pound was at US$1.7965, up from US$1.7827, while the dollar was at 1.2573 Swiss francs, down from SF1.2639.
The PPI for last month showed that US wholesale prices declined slightly by 0.1 percent in the month as prices of gasoline, food and automobiles dropped. The core index, which excludes food and energy, fell 0.1 percent.
The data, though a slight surprise to a market that expected a PPI uptick of 0.2 percent, were consistent with Federal Reserve Chairman Alan Greenspan's recent comments that the risk of inflation has abated. Some analysts felt the PPI figure undermined chances for a series of Fed rate hikes this year, which would be dollar-supportive as US assets would become more attractive for investors.
The other data release of the morning, the US deficit in international trade in goods and services, narrowed to US$50.15 billion in July, the Commerce Department reported.
This followed a record deficit of US$55.02 billion in June, which was revised down from the originally reported US$55.82 billion. The July deficit was the second-highest on record, Commerce said.
"The trade number came in slightly better than anticipated, but it's still 50-plus billion [dollars] and you have to be careful about jumping for joy over this," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
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