Forex - Dollar drops on poor June retail sales data

Published 07/16/2012, 09:59 PM
Updated 07/16/2012, 10:00 PM
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Investing.com - The dollar slid against major global currencies on Tuesday after the U.S. government revealed June retail sales fell far short of expectations, sparking talk the Federal Reserve will move to stimulate the economy via easing measures that weaken the greenback to spur recovery.

In Asian trading on Tuesday, EUR/USD was trading up 0.26% at 1.2305 and gaining after trading flat to lower earlier in the session.

Weak retail sales sent the dollar dropping in U.S. and European sessions on Monday and kept the greenback down in Asia on Tuesday.

The Commerce Department reported U.S. retail sales dropped by a seasonally adjusted 0.5% in June, far worse than market calls for a 0.2% gain.

The softer-than-expected numbers came in wake of a 0.2% decline in May and marked the first time retail sales had dropped for three consecutive months since 2008.

Core retail sales, which are stripped of automobile sales, contracted for a second consecutive month, dropping 0.4%, defying market expectations for a gain of 0.1%, after falling by 0.4% in May.

Consumer spending accounts for about 70 percent of total U.S. economic output, and poor retail sales cemented expectations for Federal Reserve intervention of some sort.

Since the downturn, the Fed has cut benchmark interest rates to near zero and has bought USD2.3 trillion in assets from banks via a monetary policy tool known as quantitative easing.

Recently, poor monthly jobs reports and consumer sentiment figures have fueled speculation the Fed will intervene anew with easing measures, and the weak retail sales figures released earlier in the U.S. further rekindled calls for Fed intervention.

Investors largely shrugged off stronger-than-expected manufacturing data out of New York state.

The Federal Reserve Bank of New York reported earlier that its "Empire State" general business conditions index rose to 7.4 in July from 2.3 in June, beating out economists' calls for a reading around 4.0.

Eurozone inflation rates, meanwhile, came in line with expectations, with the consumer price index growing 2.4% on year in June, in line with market estimates and unchanged from May.

The dollar wiped out earlier gains against its counterpart in New Zealand, where inflation rates came in weaker than expected.

Statistics New Zealand reported earlier that the country's consumer price index rose to a seasonally adjusted 0.3% in the second quarter of this year, down from 0.5% in the preceding quarter.

Analysts had expected the inflation rate to rise 0.5% in the quarter.

The quarterly inflation rate was the lowest since 1999.

The news spared talked the Reserve Bank of New Zealand will grow increasingly likely to keep interest rates low, which sent the kiwi dropping against the greenback earlier though the unit later recovered and rose against the U.S. currency.

The greenback, meanwhile, was down against the pound, with GBP/USD trading up 0.23% at 1.5672.

The dollar was up against the yen, with USD/JPY trading up 0.09% at 78.93, and down against the Swiss franc, with USD/CHF trading down 0.23% at 0.9763.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.18% at 1.0131, AUD/USD up 0.43% at 1.0293 and NZD/USD up 0.21% at 0.7996.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.16% at 83.09.

Later Tuesday, the U.S. will publish its latest consumer price index as well as reports on the country's capacity utilization rate and industrial production.

Federal Reserve Chairman Ben Bernanke will testify on the U.S. central bank’s monetary policy decisions before the Senate Banking Committee in Washington.








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