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NEW YORK: The US dollar climbed against the euro and yen on Wednesday as a widening US trade deficit resulted in risk-averting investors returning to the safe haven greenback.
The euro, which is seen as a riskier currency, fell to 1.3978 dollars in New York trading at around 2100 GMT from 1.4063 on Tuesday.
The dollar also rose against the Japanese currency at 98.12 yen from 97.41 yen.
The greenback, often regarded as a safe haven in times of economic turmoil, has been taking a beating in recent days on data showing signs of economic recovery in the recession-hit United States.
But a government report on Wednesday showing the US trade deficit widening for the second consecutive month in April left investors wondering whether the prospects of recovery from prolonged recession will be dampened.
The deficit rose to 29.2 billion dollars from a revised 28.5 billion dollars in March, when the trade gap started to widen again after seven consecutive months of decline, the Commerce Department said.
"The remarkable decline in the absolute value of the trade deficit should prove positive to the dollar by alleviating some of the balance sheet concerns caused by the massive fiscal deficits," said Boris Schlossberg, director of currency research at Global Forex Trading.
The snowballing US budget deficit had also taken the shine off the dollar in recent months amid market concerns that Washington's staggering debt levels could dampen its top credit rating.
The budget deficit is approaching one trillion dollars for the current fiscal year ending September. The Treasury said on Wednesday that the deficit widened in May from a year earlier to 189.7 billion dollars and totalled 991.95 billion dollars in the first eight months of fiscal 2009.
Schlossberg said a widening trade deficit in Britain as well as an unexpected trade deficit reported Wednesday "provides further evidence that the recovery thesis which has dominated trading in the forex market for the past several weeks may be too optimistic.
"Global trade continues to be muted suggesting that markets will have to adjust their growth expectations for the second half of 2009 to the downside."
Russia's announcement on Wednesday that it would cut US Treasury bond holdings in its 400-billion-dollar sovereign wealth fund "were quickly shrugged off after some knee-jerk dollar selling," said Brown Brothers Harriman in a note to clients.
"We see the US dollar stronger versus both the euro and British pound in the coming months due to the likely divergence in relative growth rates between the US and Europe, but trading will remain choppy," it said.
The dollar also rose on Wednesday to 1.0807 Swiss francs from 1.0783 a day earlier.
The pound rose to 1.6360 dollars from 1.6306. - AFP/de
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