By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar declined on Friday versus major rivals, giving up some of this week's gains, as the euro rebounded amid rising speculation that Greece could receive an aid package as soon as this weekend.
"We may see a spike in the euro as the situation is steadied and contagion contained," said Andrew Busch, global currency strategist at BMO Capital Markets.
Markets were reacting to a report that the loan rate for a Greek support package has been reached, while Fitch Ratings downgraded Greece to BBB- from BBB+.
The euro (CUR_EURUSD 1.3447, +0.0090, +0.6738%) jumped to $1.3435, up from $1.3352 versus the dollar in North American trade late Thursday.
The shared currency's gains "will be short lived, but the euro should get a nice relief rally towards $1.3600," Busch said.
The euro (CUR_EURYEN 125.6000, +0.8700, +0.6975%) rose 0.5% versus the Japanese yen to trade at 125.47 yen.
The dollar index (DXY 81.08, -0.45, -0.56%) , which measures the U.S unit against a trade-weighted basket of six major currencies, fell to 81.252, down from 81.537 late Thursday. For the week, the index is up 0.8%.
Against its Japanese counterpart, the dollar (CUR_USDYEN 93.4400, +0.0600, +0.0643%) gave up earlier gains to buy 93.37 yen, little changed from 93.39 yen Thursday.
Last Friday, the dollar index traded at 80.462 while the euro has fallen from $1.354 The dollar has slipped from buying 93.97 yen a week ago, on pace for the biggest weekly drop in six weeks.
The euro added to gains as Greek bond yields headed down on Thursday after European Central Bank President Jean-Claude Trichet declared that default was "not an issue" for Greece. Read about Trichet's comments.
Greek government bond yields soared to 11-year highs this week on fears of default and concerns about Greek banks' ability to fund themselves. But borrowing costs remain extremely elevated, with the yield premium demanded by investors to hold 10-year Greek bonds over benchmark German bunds at the 10-year level remained at more than 4 percentage points on Friday. See more on Greece, bailout.
Some strategists said there remained only limited room for a euro rebound.
A growing number of experts and investors believe that China will ease its currency's peg to the U.S. dollar, although the timing of the move and the details of new currency regime remain unknown. Read more on China yuan.
If China allows its currency to significantly appreciate against the U.S. dollar, the Australian dollar and the New Zealand dollar would likely be the biggest losers among Group of 10 developed countries' currencies, and Japan's yen the biggest winner, according to Barclays Capital foreign exchange analysts. Read Market Junkie blog post for more on China yuan.
The Canadian dollar retreated versus the greenback after Canada's March jobs data proved weaker than expected. The U.S. dollar rose 0.4% to buy 1.0060 Canadian dollars.
Statistics Canada said 18,000 jobs were added in March while the unemployment rate remained unchanged at 8.2%. Economists surveyed by Dow Jones Newswires had forecast a rise of 26,000 jobs and a drop in the unemployment rate to 8.1%. Read about Canada's jobs.
The South African rand rose 0.2% against the U.S. dollar following the World Bank's approval of a loan for South African power utility Eskom to ease the nation's severe electricity shortages. Read more on South Africa, World Bank.
The British pound (CUR_GBPUSD 1.5350, +0.0071, +0.4647%) rose to $1.5356 from $1.5271, aided by a stronger-than-expected rise in March producer price inflation. Read about U.K. PPI.
