NEW YORK—Strong U.S. retail sales data helped propel the dollar to its highest level in nearly a year against the yen and a near one-month high against the euro, underpinned by growing expectations that the Federal Reserve is unlikely to signal more stimulus when it renders its decision on monetary policy later in the day.
Earlier in the session, the Commerce Department reported that February retail sales rose by 1.1%. Although the numbers were broadly in line with expectations, they confirmed the existing upward trend of recent U.S. data releases, such as Friday's news that the economy created more than 200,000 jobs last month.
Strong economic data normally feed investors' appetite for stocks and higher-yielding currencies. Yet in recent weeks, they have reduced speculation that the Fed may unleash another round of bond-buying to stimulate the recovery, which tends to weaken the dollar. The Fed will issue a policy statement this afternoon.
The encouraging news on the economy coalesced with festering euro-zone debt fears, sparking broad demand for the greenback.
The euro tumbled as low as $1.3052, its weakest level since Feb. 16 and down 0.8% on the day, compared to $1.3155 late Monday. Meanwhile, the dollar surged as high as ¥82.85, its highest peak since April 27, 2011. The dollar also rose to a near one-month high against the Swiss franc at CHF0.9240.
In recent trade, the dollar was at ¥82.74 compared with ¥82.23. The pound was at $1.5630 from $1.5642, while the dollar fetched 0.9231 franc from 0.9165 franc.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 80.27 from 79.84.
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"Given recent upside U.S. data surprises and market reaction to [Fed Chairman Ben] Bernanke's house testimony, we think expectations of QE3 are already significantly lowered," said RBC Capital Markets in a note to clients.
The dollar's gains, aided by a rise in two-year U.S. Treasury note yields, were made despite a lack of further monetary policy easing action in Japan. The Bank of Japan overnight left its inflation aim and asset purchase program unchanged, while extending a loan facility for key business sectors by ¥2 trillion ($24.32 billion).
The Japanese currency initially strengthened on the news but investor demand for dollars was stronger than the urge to buy the yen as the Asian session gave way to European trading.
Europe's offering of economic data was encouraging but largely failed to move currencies. Germany's ZEW economic sentiment indicator rose sharply to 22.3, compared with a consensus forecast of just 10.
"March's rise in ZEW investor sentiment will add to hopes that the German economy is holding up surprisingly well as other parts of the euro zone slide back into recession," said research house Capital Economics.
Trade data from the U.K. also offered some grounds for optimism by showing the country's deficit widened less than expected in January due to record exports to outside the European Union.
