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Dollar falls, risk-taking puts yen under pressure

NEW YORK - The euro gained for a third straight day against the dollar on Thursday as markets worried the Federal Reserve would cut interest rates again to boost the economy.

But the dollar managed to pare some losses against the euro after data showed the US trade deficit narrowed more than expected in August, suggesting a weaker greenback may be aiding the economy by boosting exports.

That, coupled with a decline in first-time jobless claims in the latest week, took the US economy “another step away from the hard landing scenario people had feared for 2008,” said Bank of New York Mellon currency strategist Michael Woolfolk.

Still, the broader tone remained negative for the dollar, which has surrendered all the gains against the euro seen after last week’s strong US jobs data.

“Most of the uncertainty for the US is not past us and won’t be until the end of the year, as we roll into the beginning of next year and see if we get more worries or if concern over poor earnings materializes,” said Laura Ambroseno, currency strategist at Morgan Stanley in London.

The euro was up 0.25 percent at $1.4175, off a session peak of $1.4216. It hit a record high of $1.4281 last week.

The yen also came under pressure after the Bank of Japan left interest rates unchanged at 0.5 percent as expected, prompting investors to increase carry trades that use cheaply borrowed yen to buy higher-yielding assets and currencies.

The euro rose 0.7 percent at 166.83 yen after hitting 167.15, its highest since late July. The dollar rose 0.5 percent to 117.71 yen, a two-month peak.

News that Wal-Mart -- the world’s largest retailer -- raised its third-quarter profit forecast also supported risk-taking, boosting demand for yen-funded carry trades.