In the currency market, the dollar prolonged its freefall against the euro. Late Friday, the euro was trading at $1.3996 vs. $1.3904 on Thursday.

The buck fell to its lowest level vs. the euro since December, as the flight to the greenback continues to wane.

“We’ve turned to a more dollar-bearish environment,” said Nic Pifer, of RiverSource Investments. “As markets start to loosen up again and risk appetite comes back into vogue — in high-yield debt, emerging markets and equities — that safe-haven demand for the dollar has dissipated.”

The dollar may be stuck between a rock and a hard place. “In the near term, the stars are aligned against the U.S. dollar,” wrote foreign exchange strategists at Brown Brothers Harriman.

“If the news stream is good,” they wrote, “we are told investors are less risk averse and do not need the dollar’s security. If the news stream is poor, we are told the U.S. is in horrific shape and the budget deficit and Fed’s balance sheet will swell even more … It is difficult to see what will break this psychology in the coming weeks.”

Some analysts have expressed concern that the U.S. might not maintain its AAA credit rating, after the U.K.’s top-tier rating was given a negative outlook by Standard & Poor’s on Thursday.

However, “I don’t think institutional investors are all that concerned over what S&P may do in the future,” said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union.

“We would have to see a continuing onslaught of real deterioration in the U.S. financial situation for its rating to come under threat,” Sullivan added. “The dollar’s issues are mostly related to quantitative easing and how inflationary that might be. Also, risk aversion has lessened considerably” recently.

Source: Dollar in Freefall Against Euro