Dollar Weakens After Soft U.S. Retail Sales

March 12, 2015 Wall Street Journal

March 12th, 2015

By James Ramage

NEW YORK – The dollar fell slightly against the euro and the yen Thursday after a decline in U.S. retail sales signaled that consumption hasn’t recovered despite an improving labor market and falling oil prices.

Investors expected spending among U.S. consumers would rise in February, providing another sign of strength for the U.S. economy ahead of the Federal Reserve’s monetary policy meeting next week. The lackluster retail sales fueled profit-taking on the dollar’s strong gains this week and nudged back market expectations for higher U.S. interest rates.

But it won’t shift the underlying narrative that has driven the dollar higher against rivals, particularly against the euro this week, said Karl Schamotta, director of currency strategy and structured products for Toronto-based Cambridge Mercantile Group.

“Some of the froth was taken out of the euro-dollar trade, but the underlying momentum is still there,” Mr. Schamotta said. “It’s a pause for breath. The market sees this as a short-term pause before we take another leg down.”

The euro rose to $1.0628 from $1.0622 ahead of the numbers, up 0.8% for the day. The dollar declined versus the yen to Y120.98 from Y121.03 beforehand, down 0.4% for the day.

Sales at retailers and restaurants fell 0.6% last month to a seasonally adjusted $437 billion, the Commerce Department said. Retail sales fell 0.8% in January and 0.9% in December. Economists had predicted sales would rise 0.2% in February.

Lower retail sales numbers will likely lead to downgraded first-quarter growth estimates, which would present headwinds for the dollar going into the Fed policy meeting, Mr. Schamotta said.

But that will be countered, he added, by better-than-expected weekly U.S. jobless claims numbers. The number of people claiming unemployment benefits fell by 36,000 to a seasonally adjusted 289,000 in the week ended March 7, the Labor Department said Thursday. Economists had anticipated 305,000 new claims.

Investors are closely watching the Fed for signs that it is ready to raise interest rates for the first time since 2006. Higher rates would boost returns on dollar-denominated assets, and increase demand for the U.S. currency.