Dollar Rises and Euro Retreats

The U.S. dollar strengthened and the euro slumped more than 1% on Friday following news reports that Standard & Poor's will announce that it has stripped France of its coveted triple-A rating.

Agence France Presse reported on its website that S&P had already informed the French government of the decision. Austria is also expected to suffer a rating cut, but Germany and the Netherlands may be able to escape intact, according to the report.

The dollar index, which tracks the U.S. unit against a basket of six major rivals, advanced to 81.461 from 81.313 in North American action late Thursday. For the week, it rose 0.3%.

The euro slid over 1% to trade at $1.2677 versus $1.2826. It posted a weekly loss of 0.4%.

S&P's downgrade of European sovereigns had been expected after the ratings agency had placed 15 euro-zone countries on CreditWatch negative in early December.

Earlier, the euro had rallied in expectation of a strong performance after a sale of Spanish government bonds and short-term Italian debt attracted strong demand on Thursday, said Nick Stamenkovic, fixed-income economist at RIA Capital in Edinburgh.

The euro had hit an intra-day high of 1.288 before being battered by reports of S&P's decision.

The European Central Bank on Thursday left interest rates unchanged at 1%, while ECB President Mario Draghi sounded a cautiously optimistic note on the impact of the central bank's decision to flood the financial system with cheap, three-year liquidity.

Draghi sounded neutral on the outlook for further rate moves, which triggered some short-covering support for the euro/dollar pair, which has seen a heavy build-up of short bets, said You-Na Park, currency strategist at Commerzbank.

The British pound traded at $1.5319 versus the dollar, slipping from $1.5340 and the euro fell versus the sterling to fetch 82.73 pence.

The dollar traded at 76.92 yen versus the Japanese currency, firming from ¥76.77 previously.

Japanese Prime Minister Yoshihiko Noda shook up his cabinet Friday, replacing five ministers. Finance Minister Jun Azumi retained his position.

Consumer Mood on Rise

Consumer sentiment this month hit the highest level since May, with both current and future economic conditions seen as improving, according to data released Friday by the University of Michigan and Thomson Reuters.

The consumer-sentiment index reached 74 in the preliminary reading for January, compared with 69.9 in December. Economists polled by MarketWatch had expected a January reading of 73 on higher stock prices and improving jobs conditions.

"We suspect the apparent improvement in the labor market was the main driving force behind the increases, helped as well by falling gasoline prices and the recent modest rebound in stock markets. Overall, it's encouraging to see confidence rebounding, but it doesn't make up for yesterday's disappointing news on actual retail sales," said Paul Ashworth, chief U.S. economist with Capital Economics.

Jobs growth reached 200,000 in December, according to the Labor Department. Gasoline prices for all grades fell to an average of $3.33 a gallon in December from $3.44 in November, and the S&P 500 is up about 3% from the beginning of December.

The sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the start of the most recent recession. Economists watch sentiment data to get a feel for the direction of consumer spending.

According to the data from Reuters, a gauge measuring consumers' views on the current economy rose to 82.6 in January from 79.6 in December. Meanwhile, a barometer for their economic expectations rose to 68.4 from 63.6.

Jennifer Lee, senior economist at BMO Capital Markets, noted that market volatility and troubles in Europe could weigh on consumers.

"The ongoing negative headlines on Europe will dampen confidence and raise uncertainty, for both consumer and businesses. And that's not good…for anyone," Lee said.

Crude Oil Losing Sight of $100

Crude-oil futures fell further under the $100-a-barrel mark on Friday, extending losses after talk of an Iranian oil embargo eased and as jitters over a prospective euro-zone debt downgrade attracted investors who bid up the U.S. dollar.

February futures of light, sweet crude settled lower by 40 cents, or 0.4%, at $98.70 a barrel on the New York Mercantile Exchange.

"It's kind of a carryover," said Tariq Zahir, managing member of Tyche Capital Advisors, referring to crude's late retreat Thursday following a report that Europe would put off an embargo of Iran's oil imports for perhaps a few months.

Tensions over Iran's nuclear intentions and recent military drills in the Strait of Hormuz had pushed oil back above $100 in the past month. The February crude contract fell 2.8% for the week.

Also, "it's hard for crude oil to continue to go up higher with a rising U.S. dollar," Zahir said. The greenback strengthened Friday against the euro following media reports that Standard & Poor's was set to downgrade sovereign ratings on one or more euro-zone nations, undermining euro-zone efforts to solve its long-running sovereign-debt crisis.

Toward the end of floor trading, French Finance Minister Francois Baroin said the country's coveted triple-A rating was cut by one notch, according to Dow Jones Newswires Friday. Baroin said while he would have preferred to hold onto the triple-A, the downgrade anticipated by the markets was not a catastrophe.

The euro fell more than 1%.

Austria was also reportedly set to be downgraded.

Heading into the weekend, protests by union workers in Nigeria over the government's plan to end fuel subsidies were reportedly suspended as discussions between the two sides continued. However, a nationwide strike was still in effect. Nigeria is Africa's largest oil producer, with exports going largely to the U.S. and Europe.

Traders on Friday digested data showing the U.S. trade deficit widened by 10.4% in November, the largest gap since June and the biggest jump in the deficit since May.

The deficit figure of $47.8 billion was well above economists' $44.8 billion consensus forecast. The data may cause economists to trim their estimates for gross domestic product in the fourth quarter.

Adding to the somber mood in the commodity pits, the U.S. financial sector came under pressure after J.P. Morgan Chase missed on fourth-quarter profit.

Also Friday, Goldman Sachs hiked its forecast for West Texas Intermediate crude by 8%, to $113 a barrel on a three-month basis, from $104.50 a barrel previously. Goldman said the energy market isn't embedding an "Iran premium" into the price of oil as the European Union prepares for an embargo on Iranian oil.

A move by Saudi Arabia to fill the supply gap to refiners is now putting downward pressure on prices, but oil prices may move back up once the details of the embargo become known, Goldman said.

Late in Thursday's floor session, Bloomberg News reported, citing a European Union official, that an embargo wouldn't happen for six months to allow Greece, Italy and Spain to find alternative supply.

Among other energy products Friday, natural gas for February delivery fell 1.1% to $2.68 per million British thermal units. The February contract for heating oil also fell, off 0.7% to $3.03 a gallon.

However, February gasoline turned higher, edging up to $2.734 a gallon from $2.731 a gallon on Thursday.