The dollar weakened against major peers on Thursday as U.S. Treasury yields tumbled and traders scaled back expectations on the number of rate hikes the Federal Reserve would implement amid weakening economic data and heightened market volatility.
The benchmark 10-year Treasury yield hit a three-month trough of 2.845 per cent. It was last down 7 basis points at 2.851 per cent.
"I think it is essentially a yields story for the U.S. dollar today," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
"The problem for the dollar is really a decline in U.S. yields and fading Fed expectations," he said.
Fed policymakers are still widely expected to raise interest rates again at their Dec. 18-19 meeting, but the market focus is on how many rate hikes will follow in 2019.
Interest rate futures implied traders see no more than one rate increase from the Fed in 2019, compared with expectations a month earlier for possibly two rate hikes, according to CME Group's FedWatch program.
The dollar has been under pressure this week as an inversion in part of the U.S. yield curve raised a red flag for a potential recession.
Data on Thursday also weighed on the greenback. The U.S. trade deficit jumped to a 10-year high in October as soybean exports dropped further and imports of consumer goods rose to a record high, suggesting the Trump administration's tariff-related measures to shrink the trade gap likely have been ineffective. nL1N1Y91Q8]
"The widening in the trade deficit to $55.5 billion in October, from $54.6 billion, was mainly driven by a further plunge in exports to China, and suggests that net trade will once again be a drag on GDP growth in the fourth quarter," Andrew Hunter, a U.S. economist at Capital Economics, wrote in a note.
Separately, data showed private employers hired fewer workers than expected in November, pointing to a moderation in the pace of job growth.
The yen tends to benefit during geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.
Sterling was 0.43 per cent higher on the day even as worry over how a British Parliament vote on Prime Minister Theresa May's Brexit deal next week remained in focus.
The Canadian dollar fell against its U.S. counterpart to a nearly 18-month low, as Bank of Canada Governor Stephen Poloz said the economy was weaker than forecast and predicted low oil prices would cut growth.
(With inputs from agencies.)