Moves away from safe havens hit dollar

The dollar drifted lower Friday as investors showed more confidence in world economic prospects, moving away from the safe-haven US currency.

The euro rose to 1.3934 at 2100 GMT from 1.3901 dollars late Thursday in New York.

The dollar edged down to 96.31 yen against 96.55.

With little in the way of market-moving data, currency traders took a cue from equities, which suggesting a further rise in confidence about prospects for recovery from the prolonged recession.

This encouraged traders to follow the trend into riskier assets, hurting the greenback.

"All in all, the market still does not seem to be in an intense and sustained 'sell dollar' mode as it had been until the beginning of the month, a bit of a relief as consolidation brings an increasing sense of the returning stability to forex markets," said Sacha Tihanyi at Scotia Capital.

"An eventual resumption in dollar weakness is in our forecast throughout the next quarter."

"The euro should continue to climb against the dollar as investor confidence is restored," said analysts at BNP Paribas bank.

They pointed to recent encouraging reports from the United States suggesting that a recovery may be starting to take hold in the world's largest economy.

On Thursday, the Conference Board's index of leading economic indicators, a measure of economic conditions in the coming months, rose 1.2 percent in May from the prior month. Most analysts had expected a rise of 1.0 percent.

As chances for a rebound in the United States strengthen, investors are emboldened to take positions in currencies seen as riskier than the dollar, notably the euro.

The euro also drew strength from recent stability on world financial markets, which further encourages investors to venture into currencies apart from the dollar.

"As the level of panic in financial markets is falling, traders are changing gears on buying currencies that attest to strength in the global economy," said Sumitomo Trust and Bank foreign exchange strategist Jitsuo Tachibana.

At the same time, other analysts cautioned that concerns over the health of US public finances, notably the country's massive budget deficit, were likely to cast a shadow over the recent encouraging data.

Washington will issue a record 104 billion dollars in new bonds next week and traders "will be nervously watching for how this jump in supply is absorbed with implications for the dollar and bond yields," NAB Capital strategists wrote in a note to clients.

Investors will also be waiting for the Federal Reserve monetary policy meeting beginning Tuesday for clues on the outlook for interest rates, another
factor that could affect currencies. Some see a possible rate hike by the end of the year.

"A rate hike in our view is relatively far off into the future, but there are numerous other means by which the Fed with possible assistance of the Treasury could pull back on various stimulus plans," said Gregory Drahuschak at Janney Montgomery Scott.

In late New York trade, the dollar stood at 1.0810 Swiss francs from 1.0861 Thursday