The dollar rose today after a narrowing of the US trade deficit eased market concerns about the country's external financing problems.

The deficit contracted to $54.99 billion in March from a revised $60.57 billion in February, well below economists' median forecast for a $61.5 billion shortfall. Exports rose 1.5%,  while imports dropped a sharp 2.5%.

The euro fell to session lows around $1.2794 after the data, steeply lower from around $1.2875 shortly before. In early New York trading, the euro zone currency was down 0.6% from late Tuesday at $1.2800.

The trade deficit and its role in the overall current account financing gap, has been a major factor behind the dollar's weakness for much of the last 3 years. If Americans continue to buy foreign goods faster than US businesses can sell their goods and services overseas, the outflow of dollars will remain heavy, putting further pressure on the currency.