NEW YORK -- The dollar and the yen extended their overnight gains in New York trading Friday, as a renewed wave of risk aversion bolstered the currencies as investors sought to escape riskier positions.
The move toward safety helped the dollar against many of its higher-yielding counterparts, but not the yen. Early in the New York session, the greenback touched a series of intraday lows, briefly dropping below ¥92.
Most other major currencies gave back gains from Thursday's North American session, as slumping stocks, worries about Eastern Europe and concern about the unfolding second-quarter earnings season revived risk aversion overnight.
The unexpected narrowing of the U.S. trade deficit in May hasn't had much effect on currencies, although USD/JPY did return above 92 from its brief dip below. The trade gap moved to its lowest level since November 1999, as exports grew and imports fell despite rising oil prices.
The U.S. deficit in international trade of goods and services contracted 9.8% to $25.96 billion from a downwardly revised $28.79 billion in April, the Commerce Department said Friday. The April trade gap was originally reported as $29.16 billion.
Investors may look for guidance from the preliminary University of Michigan/Reuters consumer confidence index at 9:55 a.m. Eastern. The index is a key measure of the relative financial health, spending power and confidence of the average U.S. consumer about the economy.
Risk appetite has waxed and waned in currency trading in recent days, as skittish investors change their minds about global economic recovery prospects. Most of this week, anxiety about the sustainability of an economic comeback has overshadowed the optimism coming from "green shoots" indicating a turnaround could be under way.
Most major currencies have stuck within relatively narrow ranges, as investors have been reluctant to take positions. The U.S. earnings season kicked off late Wednesday with aluminum giant Alcoa Inc.'s earnings, but many more companies report next week.
With a relatively light economic data schedule, investors have looked elsewhere to set the tone, and there remains some caution that on the whole, corporate profits could disappoint.
"The earnings season has not produced any surprises thus far and, barring an exceptionally good set of numbers next week, we continue to expect the dollar to advance on the back of increased risk aversion," UBS currency analyst Gareth Berry wrote in an email note.
Hurting sentiment overnight was a report from Germany's Handelsblatt newspaper that at least 10 East European countries are in negotiations with the International Monetary Fund for billions of dollars in aid programs.
As euro-zone banks are the most exposed to the region, they are most at risk if these countries start to default on their loans.
However, the end of the Group of Eight leading nations summit in Italy hasn't had much impact on foreign exchange markets, with global leaders expected to repeat cautions that the global recession may not be over yet. Also, another call by the Chinese for an overhaul of the international currency reserve system hasn't grabbed much attention, given that few analysts expect any major changes on the issue in the near term.
Early morning Friday in New York, the euro had been pushed down to $1.3914 from $1.4030 late Thursday, according to EBS. The single currency was also down at ¥128.27 from ¥130.40, while the dollar fell to ¥92.30 from ¥92.93.
The pound fell to $1.6208 from $1.6350 as the market continued to consider the impact of the Bank of England's decision on quantitative easing. The unexpected announcement initially lifted the pound sharply as it appeared to be a vote of confidence in the U.K. economic recovery.
Analysts say the central bank could still resume the program in August. This has increased general uncertainty, as well as hurt equities by tightening monetary policy.
The dollar rose to 1.0883 Swiss francs from 1.0780 Swiss francs. The market is on guard for any possible intervention from the Swiss National Bank, after its President Jean-Pierre Roth said he doesn't want to see any further appreciation in the franc.
Similarly, investors may be wary of sending the yen much higher versus the greenback following another warning from Japan that continued yen strength has hurt Japanese exports.
The Canadian dollar is moderately lower and outperforming the U.S. dollar's gains elsewhere on the revival of risk aversion. The Canadian currency has been buoyed to a degree by news of smaller-than-expected Canadian June job losses, but the respite could prove fleeting.
The jobs data have "given the Canadian dollar a temporary reprieve and help reinforce today's outperformance, but with commodities looking weak once again and North American futures pointing to a negative open, it will be a struggle for the Canadian dollar to close in positive territory unless we see a large sentiment shift in the North American day," according to currency strategists at Scotia Capital in Toronto.
Early Friday, the U.S. dollar is at C$1.1653 from C$1.1613 late Thursday.
