Forex - U.S. dollar slammed on retail sales, easing speculation

Investing.com - The U.S. dollar traded sharply lower against its major counterparts  Wednesday, after disappointing U.S. retail sales data fuelled speculation over a third round of monetary easing by the Federal Reserve.

During U.S. afternoon trade, the dollar was down against the euro, with EUR/USD gaining 0.72% to hit 1.2594.

The Commerce Department said U.S. retail sales declined by a seasonally adjusted 0.2% in May, falling for the second successive month, marking the first back-to-back- decline in two years.

April’s figure was revised to a 0.2% decline from a previously reported gain of 0.1%.

Core retail sales, which exclude automobile sales, fell by 0.4% last month, the biggest decline since May 2010.

A separate report showed that U.S. producer price inflation fell 0.2% in May, the largest monthly decline since July 2009.

The weak data added to expectations that the Fed may implement a third round of easing to shore up economic growth after Chicago Fed President Charles Evans reiterated his support for additional monetary stimulus on Tuesday.

The euro remained under pressure amid worries that a bailout of as much as EUR100 billion for Spain’s banks will add to the country’s debt burden and make it more difficult for Madrid to access credit markets.

The yield on Spanish 10-year bonds ticked up to 6.76% earlier, close to the critical 7% level, which is viewed as unsustainable in the long run after it prompted bailouts in Greece, Ireland and Portugal.

Meanwhile investors were focused on the outcome of Sunday’s general election in Greece, which could determine if the country remains in the euro zone.

The greenback edged lower against the pound, with GBP/USD inching up 0.06% to hit 1.5579.

Elsewhere, the greenback weakened against the yen and the Swiss franc, with USD/JPY slipping 0.15% to hit 79.39 and USD/CHF giving back 0.57% to hit 0.9550.

In Switzerland, official data showed that producer price index ticked down 0.2% in May, in line with expectations after a 0.1% decline the previous month.

In addition, the greenback was lower against its Canadian, Australian and New Zealand counterparts, with USD/CAD losing 0.19% to hit 1.0242, AUD/USD rising 0.40% to hit 0.9998 and NZD/USD gaining 0.43% to hit 0.7804.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, dropped 0.52%, to trade at 82.44.

Earlier Wednesday, Italy saw one-year borrowing costs surge to the highest level since December at an auction of government bonds, amid growing fears the country will be the next euro zone member to require a bailout.

Meanwhile, official data showed that industrial production in the euro zone fell 0.8% in April, down for the second consecutive month, underlining fears over the health of the region’s economy.