The dollar had its biggest weekly decline versus the euro in almost three months after a government report showed the U.S. trade deficit widened to $58.3 billion, the second biggest ever.

"Its a large deficit, and we all know how much this has been contributing to the dollars decline, said Michael Woolfolk, senior currency strategist at the Bank of New York. "As long as we dont see a substantial improvement in the trade figures, the trend will remain negative for the dollar.

Against the euro this week, the dollar slid 1.6% to $1.3457 in New York, according to electronic currency-dealing system EBS. It fell 0.8% to 104.00 yen, its fourth straight weekly decline versus Japans currency. Woolfolk said the dollar may weaken to $1.35 per euro in the next week.

The U.S. currency also dropped versus the British pound, Canadian dollar and Swiss franc on concern foreign central banks may diversify their holdings of currency reserves away from dollars.

"This deficit is getting larger and is now spooking the market, said Shahab Jalinoos, a currency strategist at ABN Amro Holding NV in London. Jalinoos said the dollar may fall to $1.3666 in two weeks, matching its record low reached Dec. 30.