Weak U.S. Retail Sales Data Weighs on the Dollar as Euro Struggles

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Fundamental Analysis Forex Trading Review - May 21, 2014

Weak U.S. Retail Sales Data Weighs on the Dollar as Euro StrugglesWeak U.S. April retail sales figures weighed on the dollar on Tuesday though it still remained stronger against the euro, which was pulled back by decline in investor confidence in Germany.

The euro also licked its wounds after the Germany’s central bank said it would support a looser monetary policy by the European Central Bank, causing investors to ditch the 18-nation currency.

“At the very margin this (retail sales) report could push out the timing of (U.S. Federal Reserve) rate hikes but probably not discourage the timing of the tapering, that is being reflected in the weaker dollar,” said Sal Guatieri, a Toronto-based senior economist at BMO Capital Markets, told Reuters. “It is just one report but if some of the other April data come on the soft side it would raise alarm bells,” he said.

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The euro was trading at $1.3720, slightly above $1.3700, its lowest in one month after U.S. retail sales grew by a measly 0.1 percent in April. This lagged the median estimate of a growth of 0.4 percent in a Reuters survey of economists.

The euro also rose at least 0.15 percent from a 16-month low of 81.38 pence against the pound, which was boosted by speculation that the Bank of England may hike interest rates this year. The dollar ended its losing streak against the yen to trade at 102.11.

Most analysts speculate that hedge funds are increasingly disposing the euro over fears that ECB will loosen its monetary policy this coming June in order to combat the stubborn deflation and the stronger euro.

On Monday, Dow Jones quoted an unnamed person as saying that Germany’s central bank is supportive of negative interest rates and asset-purchases by ECB if that is what is needed to bolster inflation. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com