On Friday dollar again increased as investors showed preference for dollar against riskier assets like  stocks. The dollar index which measures dollar against a basket of currencies increased by 0.6% on Friday to 75.720. The euro declined by 0.5% to $1.4838 after reaching a two-week low of $1.4800. Against the yen the dollar was unchanged at ¥89.08. The sterling declined by 1% to $1.6483 and the Australian dollar declined by 0.9% to $0.9111. Against the Swiss franc dollar increased to 1.0182 Swiss francs from 1.0133 francs and against the Canadian dollar increased to 1.0714 Canadian dollars from 1.0626.

The dollar has been helped in the entire week by weak economic data. Last week government released data showing that the jobless claims continues to be high and foreclosures are increasing. Weak economic data helped dollar as investors reduced their holdings of risky assets like stocks and bought dollar and short term US treasury bonds.

The dollar was also helped by banks parking funds in safe assets like the US government bonds. This resulted in the rates

on short-dated U.S. government paper declining on Thursday. In fact the treasury yields almost reached its low as investors preferred non risky assets given the current situation of turmoil. Analysts feel that this was mainly on account of funds booking profits and parking their cash in U.S. government bonds before the month end.

Among other news there was little impact of European Central Bank Governor Jean-Claude Trichet comment that it is too early to announce that the financial crisis is over. The bank of Japan continued with its low interest rates policy keeping the interest rate at a record low of 0.1%. This was more or less expected and hence the markets did not react in a big way to this development . The bank of Japan governor further made it clear that the bank plans to continue with its low interest rate policy to help the economy.

Analysts feel that the current rise in dollar cannot be taken as an indication that dollar is strengthening. Since March dollar has lost approximately 14% as investors worry about the pace of global economic recovery and prefer higher yielding currencies and assets. US dollar has also been pulled down by low US interest rates. The big trade deficit and super low interest rate which Fed has made clear will continue for some time is expected to again put downward pressure on dollar. Theoretically low interest makes currency less attractive cause investors prefer to transfer funds to higher earning assets.