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Dollar Retreats After Early Gains, But Stays Mostly Steady

After moving higher Friday morning on strong data on building permits and retail sales, the U.S. dollar retreated and gave up its gains as the session progressed.

The dollar index, which rose to 98.34 around mid morning, declined to a low of 98.11 before regaining some lost ground and edging up to 98.21.

The dollar rose to a two-week high against the euro, as the latter tumbled amid expectations that the European Central Bank will announce further stimulus to boost the sagging euro area growth.

The euro slipped to a low of $1.1108, but later recovered to $1.1090, still trailing by about 0.16% from previous close.

The euro weakened after ECB's Olli Rehn expressed the need for a significant easing package in September to support the flagging eurozone economy.

Against the Pound Sterling, the dollar dropped to 1.2145, losing about 0.5%.

The greenback gained against the Yen, with a unit fetching 106.34 yen. Earlier in the session, the yen was down at 106.41 a dollar.

Against the loonie, the dollar was down more than 0.3% at 1.3270, while it gained 0.07% and 0.23% against the Aussie and Swiss franc, respectively, at 0.6780 and 0.9787.

According to the data released by the Commerce Department, housing starts tumbled by 4% to an annual rate of 1.191 million from the revised June estimate of 1.241 million. The drop surprised economists, who had expected housing starts to edge up by 0.3% to a rate of 1.257 million from the 1.253 million originally reported for the previous month.

Meanwhile, building permits spiked by 8.4% to a rate of 1.336 million in July from a revised 1.232 million in June. Building permits had been expected to jump by 4.1% to 1.270 million from the 1.220 million originally reported for the previous month.

The University of Michigan's preliminary report said consumer sentiment in the U.S. has seen a significant deterioration in the month of August. The report said the consumer sentiment index tumbled to 92.1 in August after inching up to 98.4 in July. Economists had expected the index to dip to 97.2.

With the much steeper than expected drop, the consumer sentiment index slumped to its lowest level since hitting 91.2 in January.

The sharp pullback by the headline index came as the current economic conditions index slid to 107.4 in August from 110.7 in July, hitting its lowest level since late 2016.

The index of consumer expectations showed an even more substantial decrease, plunging to 82.3 in August from 90.5 in July.

The deterioration in consumer sentiment came amid concerns about the proposed increase in tariffs on Chinese imports as well as the reasoning behind the Federal Reserve's interest rate cut.

On the inflation front, the report said one-year inflation expectations inched up to 2.7% in August from 2.6% in July, while five-year inflation expectations ticked up to 2.6% from 2.5%.

The focus now shifts to the Jackson Hole symposium. Fed Chair Powell's comments will be closely watched for fresh hints on the interest rates outlook amid heightened concerns over the potential for a recession and an ongoing U.S.-China trade spat.

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