The dollar rallied against the euro in trade here Friday as European stock markets weakened.
The dollar had fallen in Asian trade after an overnight rally on Wall Street hinted at an easing of the US recession, prompting investors to look for riskier bets elsewhere, traders said.
The dollar, which has been considered a safe haven currency in recent months, loses some of its appeal when risk appetite improves and investors hunt elsewhere for assets with higher returns.
In London trade on Friday, the euro dropped to 1.3432 dollars from 1.3525 dollars late in New York on Thursday.
Against the Japanese currency, the dollar dipped to 98.32 yen from 98.74 yen on Thursday.
"The sharp dollar sell-off last week in response to the aggressive monetary policy action taken by the Federal Reserve has petered out," said Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ.
"Our bias remains skewed toward the prospect of further dollar weakness ahead as the current global equity market recovery continues, helping drive risk appetite stronger."
The greenback was weaker against the yen on Friday as Japanese investors repatriated overseas assets in preparation for the end of the country's fiscal year on March 31 when they close their books, dealers said.
In addition, "markets are moving based on a sentiment of hope," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.
Revised data in the United States published Thursday showed a steep 6.3-percent pace of decline in economic output in the fourth quarter of 2008, although it was better than the 6.6 percent fall anticipated by analysts.
A separate report showed the number of new jobless claims in the United States rose by 1.2 percent to 652,000 during the week ending March 21, although analysts said that the pace of unemployment growth may be losing steam.
On Friday, the pound fell against the euro and dollar as official data showed the British economy had shrunk by a sharper than expected 1.6 percent in the fourth quarter of last year -- the biggest contraction since 1980 -- as the nation slid into recession.
The Office for National Statistics said gross domestic product (GDP) contracted 1.6 percent in the final three months of last year compared with the third quarter of 2008. The ONS previously said the economy had shrunk 1.5 percent.
In London trade on Friday, the euro was changing hands at 1.3432 dollars against 1.3525 dollars late on Thursday, 132.40 yen (133.55), 0.9398 pounds (0.9350) and 1.5268 Swiss francs (1.5245).
The dollar stood at 98.32 yen (98.74) and 1.1339 Swiss francs (1.1269).
The pound was at 1.4328 dollars (1.4457).
On the London Bullion Market, the price of gold fell to 927.50 dollars an ounce from 938.25 dollars an ounce late on Thursday.
