The dollar drifted higher on Friday after three straight days of losses, and riskier currencies fell, as bleak non-U.S. economic data gave global equity markets reason to pause after another week of record highs.
As a safe haven, the U.S. currency tends to rise in times of financial and economic stress that result in lower risk appetite.
U.S. stocks and Treasury yields were lower as well, suggesting a generally somber mood in financial markets.
The dollar did pare gains and other riskier currencies cut losses after upbeat U.S. economic data – a rise in factory activity to its highest in more than 13 years in January and an unexpected 0.7% gain rise in existing home sales.
The greenback had fallen against a basket of currencies for the past three sessions as market optimism about new U.S. President Joe Biden’s fiscal stimulus plans prompted traders to seek riskier assets, producing gains in riskier currencies such as the New Zealand and Australian dollar.
But that trend paused on Friday as market sentiment pulled back. Global shares slipped off record highs as the U.S. dollar steadied, up 0.2% on the day at 90.265.
The dollar index though was still on track for its biggest weekly loss since mid-December.
“Optimism gave way to renewed worry Friday as (coronavirus) infection rates rose in China and data across Europe offered evidence of the containment measures undermining recoveries,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Gloomy economic data did little to brighten the mood, as UK data showed British retailers struggled to recover in December.
Economic activity in the euro zone shrank markedly in January as stringent lockdowns to contain the coronavirus pandemic hit the bloc’s dominant service industry hard.
In late morning trading, the dollar rose 0.3% against the yen to 103.835.
Data from Japan overnight showed factory activity slipped into contraction in January and the services sector was more pessimistic as emergency measures to combat a COVID-19 resurgence dampened sentiment.
The Australian dollar fell after disappointing retail sales data, but was still set for a weekly rise. It was last down 0.6% at US$0.7720 .
The New Zealand dollar was down around 0.6% at US$0.7179 versus the U.S. dollar.
The euro was little changed at $1.2172.
The single currency rose on Thursday after the European Central Bank’s policy rate announcement, with the ECB saying it might not need to use its full asset-purchase envelope.
ECB President Christine Lagarde also said the bank was “very carefully” monitoring the euro exchange rate, which in 2020 soared nearly 9% against the dollar.
The Norwegian crown was hurt by lower commodity prices, slumping 1.2% against the dollar to 8.4855.
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Elizabeth Howcroft in London; Editing by Mark Heinrich