NEW YORK, June 14: The dollar weakened sharply on Friday after a gauge of US consumer sentiment fell unexpectedly in June, fanning expectations the Federal Reserve may have to cut rates to stimulate the troubled economy.

After sentiment surged in the month immediately following the Iraq war, the University of Michigan said consumers had turned pessimistic in June. Its gauge of consumer sentiment slipped to 87.2 from May’s 92.1, contrary to economists’ predictions that the figure would rise.

Market analysts say the data increased the likelihood that the Fed would cut interest rates when they meet in late June, a move that would undermine the dollar’s price action even further given that returns on U.S. assets are already well below those in continental Europe.

It appears that when this Michigan number came out, that took the wind out of the dollar ..., said Michael Woolfolk, currency strategist with the Bank of New York. This number (Michigan) was something of a surprise to the market. We had figured that rebounding from the war, consumers would continue to drive the economy forward.

As major stock benchmarks ended the session deep in negative territory, the dollar settled near $1.1860 versus the euro, off 0.80 per cent from its previous US close. Some analysts expect the euro to probe the psychological bulwark of $1.20 next week.

Canada’s currency soared to its highest level in 7 years against the dollar, settling at C$1.3345. The dollar also tumbled more than a percent against the Swiss franc to change hands near 1.2980 francs.

Against the yen, the euro traded near 139.32 yen, up 0.60 per cent from its previous US close.—Reuters