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Dollar falls as June retail-sales drop trims Fed rate-rise odds

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(Bloomberg) — The dollar weakened after a report showed sales at U.S. retailers unexpectedly fell in June, clouding the outlook for the economy as the Federal Reserve looks to raise interest rates.

The greenback dropped against most of its major peers after retail sales declined by 0.3 percent in June, less than the 0.3 percent gain forecast by analysts surveyed by Bloomberg, following a revised 1 percent increase in May. Traders pushed back the projected timing for the Fed to increase rates for the first time in almost a decade, as Fed Chair Janet Yellen will address Congress this week on the U.S. economic outlook.

“It puts the dollar on the back foot temporarily,” Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG in New York, said by e-mail. “But with the Bank of Canada meeting tomorrow and Yellen’s testimony, it remains to be seen how long the U.S. dollar weakness sticks around.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major peers, fell 0.2 percent to 1,194.37 at 11:52 a.m. in New York, trimming its earlier drop. The dollar fell 0.1 percent to $1.1012 per euro and was little changed at 123.40 yen.

“The U.S. dollar is a little weak on consolidation after yesterday’s rally on the Greece deal along with weaker retail sales this morning,” Scott Smith, senior market analyst at Cambridge Global Payments, a global foreign-exchange and payments provider, said from Calgary.

The probability of a Fed rate increase at its September meeting fell to 27 percent from 35 percent on Monday, according to futures data compiled by Bloomberg. For December, the odds fell to 63 percent from 69 percent.

Sluggish sales figures “will once again disappoint the dollar bulls who will likely push their expectations out to December,” Boris Schlossberg, managing director of foreign- exchange strategy at BK Asset Management in New York, said in a note before the data were released. “That could result in yet another short-covering rally in the euro-dollar, with the pair possibly testing $1.1100 on any miss in U.S. data.”