By Deborah Levine and Lisa Twaronite, MarketWatch
NEW YORK (MarketWatch) — The dollar pared losses against the euro and other major currencies on Tuesday after a pair of U.S. economic reports showed consumers kept shopping and wholesale prices rose, boosting equities and hopes that the U.S. economy has not slipped back into recession.
“The rally in risk indicates that investors are relieved that the economic outlook is only grim and not atrocious,” said Kathy Lien, director of currency research for GFT.
The data followed strong economic data in China and a surprise tightening move from the People’s Bank of China.
The dollar index DXY +0.03% , which measures the performance of the U.S. unit against a basket of six currencies, traded at 74.474, up from 74.371 before the data but still lower than 74.501 seen in late North American trading Monday.
The euro EURUSD +0.17% rose to $1.4433 from $1.4417 Monday. It rose as high as $1.4472 in earlier action. See real-time currency quotes and tools.
U.S. retail sales fell in May for the first time in 11 months, due to expectedly-weak auto sales, the Commerce Department said. However, excluding autos, sales rose 0.3%, a little better than some analysts predicted. Read story on retail sales.
“The decline in retail sales was not as sharp as the market had feared,” Lien wrote in a note. “Expectations for both U.S. and Chinese economic data was so low that the movements in the markets today can be best described as a relief rally.”
A separate report showed producer prices rose at a slower pace. See more on producer-price index.
Traders also awaited any agreement from a meeting of high-ranking European officials on how countries and investors will help Greece finance its debt burden.
“The main decisions that need to be made today, before being voted on next week by euro zone finance ministers on June 20 and then European Union leaders on June 24 “are the size of the new bailout, the source of new funds and the extent of private sector burden sharing - the most contentious point,” said Kathleen Brooks, research director at Forex.com.
The new bailout may cover the next three years and could be as high as 120 billion euros, she said.
At the same time, traders noted a 5-billion- euro bond sale by the European Financial Stability Facility to fund a loan to Portugal, reminding investors of continues fiscal problems in other countries that share the euro.
Chinese data, rate hike
During the Asian session, the dollar fell after better-than-expected Chinese inflation and manufacturing data. Read more on China data.
The data weighed on the dollar, as investors were reassured about China’s economic prospects and shed the safety of lower-yielding currencies like the greenback.
“Chinese data for May printed a bit better than expected, alleviating fears of [a] hard landing for the world’s second-largest economy and spurring risk appetite,” said Boris Schlossberg, director of currency research at GFT.
The Australian dollar showed the biggest reaction to China’s move, as China is a major market for Australia’s resources.
The aussie AUDUSD +0.43% traded at $1.0651, up versus $1.0618 Monday.
Later the dollar pared some losses after China raised reserve requirements for banks to a record 21.5%, the ninth since October. Read story on China tightening.
The British pound GBPUSD +0.12% bought $1.6412, down from an earlier high of $1.6441 and compared to $1.6371 late Monday.
Against the Japanese yen, the dollar USDJPY +0.39% rose to ¥80.56 after the U.S. data, from ¥80.20 late Monday.
The market had a muted reaction to the Bank of Japan’s decision to expand its special lending facility for growth industries. It also kept its key policy rate steady, as expected, and tweaked upward its assessment of the country’s economy. Read more on Bank of Japan.
