MW: Dollar turns down after weak U.S. retail sales
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar turned lower on Monday after a report showed retail sales in the U.S. unexpectedly fell last month, raising worries that the Federal Reserve will pump more money into the financial system.
The dollar index DXY +0.0096% , which tracks the U.S. currency against six major currencies, turned down to 83.285, from 83.324 late Friday in North American trading.
The euro EURUSD -0.2708% erased losses to trade at $1.2242 from $1.2245 Friday. It hit a low of $1.2174 before the data, just above a two-year low touched last week. Read more on Friday’s currency action
Against the Japanese yen, the dollar USDJPY -0.6134% extended its decline to ¥78.90, down from ¥79.29 late Friday.
U.S. retail sales fell 0.5% in June, the Commerce Department said. It’s the third straight month of slowing sales, the weakest run since the second half of 2008, during the Great Recession. See story on retail sales.
“We are looking at a very weak third quarter GDP that will show minimal improvement in growth,” said Kathy Lien, managing director of FX Strategy at BK Asset Management. “This morning’s U.S. consumer spending report hardens the case for QE3” — a nickname for a third round of quantitative easing — bond purchases — by the Federal Reserve, which a growing number of analysts and investors say could come later this year.
Central-bank bond purchases are designed to increase the availability of funding in the financial system but are seen by many as devaluing a country’s currency.
Spanish bondholders
The dollar was up versus the euro before the U.S. data, with analysts focused on a Wall Street Journal report that the European Central Bank, in a major reversal, has advocated imposing losses on holders of senior bonds issued by Spain's most troubled banks, although finance ministers have rejected such a move. Read about the ECB’s shift
When it comes to the euro, “the market is short, and bearish and very comfortable. We don’t like being consensus but there is little point being contrarian just for the sake of it, and with the ECB warming to the idea of ‘burden-sharing’ by the bondholders of rescued banks, there remains no good news for the euro,” wrote Kit Juckes, head of foreign exchange at Société Générale, in a note.
The main event for the week will be U.S. Federal Reserve Chairman Ben Bernanke’s semiannual testimony to Congress, slated for Tuesday and Wednesday.
Barclays analysts said the greenback is likely to gain unless the Fed chief suggests fresh policy-easing moves are coming soon.
“Chairman Bernanke is not likely to give an indication that further easing is imminent. That added to negative earnings surprises in the U.S. may weigh on risk sentiment in the near term, boosting the [U.S. dollar] more broadly,” they said in a note.
Strategists at Crédit Agricole said that even if Bernanke did sound a dovish note during the testimony, the dollar could make gains anyway.
“Despite the recent buildup [in] long positions, we do not see [the dollar] as particularly vulnerable to a more accommodative policy stance, should such a shift be perceived. Indeed, to the contrary, the outlining of additional Fed stimulus options could work to the [dollar’s] benefit, given currently heightened levels of investor risk aversion surrounding Europe,” they said, in terms of the dollar’s value against the euro.
Crédit Agricole tipped the euro to “remain relatively stable above $1.2050” for the beginning of the week.
Among other major currency pairs, the British pound GBPUSD +0.2035% turned up to buy $1.5597 compared with $1.5578 late Friday,
The Australian dollar AUDUSD -0.1883% also pared its losses to $1.0226 from $1.0227.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Michael Kitchen in Los Angeles contributed to this report.
