Dismal Consumer Confidence Reading Weighs On Dollar, Friday, May 16, 2008 2:59:10 PM

The dollar hit the skids against other major currencies on Friday as the release of a report showing that US consumer sentiment dropped to its lowest since 1980 overshadowed a relatively encouraging reading on the housing situation.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence fell to 59.5 in May, down from 62.6 in April. This was well below economists` median expectation of a reading of 62.0.

The dreadful consumer confidence reading overshadowed data showing that housing starts unexpectedly showed a significant increase in the month of April, according to a report released by the Department of Commerce. The data is likely to offset some of the recent pessimism about the outlook for the housing market.

The report showed that housing starts jumped 8.2 percent to an annual rate of 1.032 million units in April from the revised March rate of 954,000 units. Economists had expected starts to edge down to 940,000 units from the 947,000 unit rate originally reported for the previous months.

The greenback fell to a 2-week low against the euro, dropping to 1.5601 before levelling off aver the course of the afternoon. With the retreat, the dollar moved further away from a 2-month high of 1.5283.

The Eurostat announced that Euro zone trade balance with the rest of the world showed a deficit of EUR2.3 billion in March. In February, the trade balance recorded a surplus of EUR0.8 billion. Economists had expected the trade surplus to increase to EUR2.5 billion in March.

The buck dropped sharply against the yen in Friday morning, but pared a good portion of its losses by mid-afternoon. The buck slipped to 103.50 before bouncing back to 104.15. Even with the loss, the dollar gained a bit of ground this week.

Japan`s economy grew 0.8 % in the first quarter over the previous quarter on strong exports. That was up from the 0.6% increase in the previous quarter, and it beat analyst expectations that called for a 0.7% quarterly increase. On an annual basis, GDP was up 3.3%.

The dollar was also on the back foot against the sterling, slipping to 1.96 from an early level near 1.9450. The dollar has eased since hitting a multi-month high of 1.9362.

The greenback snapped back from a 9-week low of .9942 versus the loonie, rebounding back above parity by 3 pm ET. The buck came under pressure in late morning dealing after the price of oil jumped to a new record above $127.