Forex - U.S. dollar drops on improved risk sentiment

Investing.com - The U.S. dollar traded lower against its global counterparts Friday, as risk sentiment improved following the release of better than expected U.S. data, but uncertainty over a second bailout deal for Greece continued to cloud the outlook for riskier assets.

During U.S. morning trade, the dollar was lower against the euro, with EUR/USD gaining 0.22% to hit 1.3160.

Euro zone finance ministers argued over how to best bail out Greece in last night’s conference call. Estimates that Greek debt would fall to 129% of gross domestic product by 2020, missing the 120% target casts fears over the viability of the proposed bail out.

Greek’s sovereign lenders are considering charging lower interest rates to help the island nation avoid default.

France suggested that central banks simply take the losses in Greek bonds, but this idea has not gained any support.

A two step decision appears possible where a bond exchange is approved at the meeting next week, then completing the EUR130 billion public aid program. However, this would result in high political risk as two votes are required in some national parliaments.

Earlier, risk sentiment improved after data indicated that U.S. initial jobless claims unexpectedly fell to their lowest level since March 2008 last week, declining to 348,000, missing expectations for an increase to 364,000.

An index of manufacturing activity in the Philadelphia area rose more-than-expected in February, advancing to 10.2, above expectations for a rise to 9.0.

In a separate report, the U.S. Census Bureau said the number of building permits issued in January rose 0.7% to a seasonally adjusted 0.68 million, broadly in line with market expectations.

The greenback found support after ratings agency Moody's warned that it may cut the credit ratings of 114 banks in 16 countries across Europe, citing banks' vulnerability to the sovereign debt crisis in the euro zone.

The greenback was lower against the pound, with GBP/USD advancing 0.26% to hit 1.5840.

Pound sentiment increased after the Bank of England’s quarterly inflation report Tuesday revised higher the bank’s two year inflation forecast, lowering expectations for more quantitative easing measures.

Yesterday, a report by lender Nationwide showed British consumer confidence climbed to its highest level in five months in January as people's view of the outlook six months ahead grew more upbeat.

The greenback was higher against yen but lower against the Swiss franc, with USD/JPY adding 0.38% to hit 79.23 and USD/CHF down 0.14%, to hit 0.9180.

Elsewhere, the greenback was lower against its Canadian, Australian cousins and New Zealand counterparts, with USD/CAD slipping 0.17% to hit 0.9950, AUD/USD adding 0.05% to hit 1.0759  and NZD/USD up 0.43% to  0.8366.

Yesterday, official data showed that the Australian economy added 46,300 jobs in January, beating expectations for a 10,500 gain, bringing the unemployment rate down to 5.1%.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.10% to hit 79.39.