US dollar fades as analysts sense economic softening

The US dollar faded on Friday as traders digging into reports on US retail sales and wholesale prices found soft conditions that could lead to an easier monetary stance from the Federal Reserve.

The euro rose to US$1.2139 at 10pm GMT from US$1.2033 in New York late on Thursday.

The US dollar drifted down to ?114.17 from ?114.32 on Thursday.

Traders beyond the headline figures on wholesale inflation and retail sales found signs of economic softening that may lead the Fed to ease its stand on interest rates.

US sales rose 0.7 percent last month, but just 0.2 percent excluding the automobile sector. Analysts had expected rises of 0.9 percent and 0.4 percent respectively.

A surge in energy costs pushed US producer prices -- an indicator of inflation at the wholesale level -- up 0.9 percent last month. But the core PPI index, excluding food and energy, rose only 0.1 percent. Economists had expected a 0.4-percent rise in the headline PPI and a 0.2-percent increase in the core rate.

The Fed has raised rates in its past 13 meetings, but analyst Richard Lee at Forex Capital Markets said: "The bond market interpreted the soft retail sales data as a bullish sign as policy makers may shift the current tightening cycle."

Paul Ashworth at Capital Economics noted that the headline rise in retail sales had been driven by volatile vehicle sales, while the headline PPI increase was mostly the result of rising petrol and food prices.

"The upshot is that there is nothing here to stop the Fed calling it a day once interest rates reach 4.5 percent," he said.

Analyst Daragh Maher at CALYON agreed. Although the figures will not alter expectations of the Federal Reserve hiking interest rates by another quarter point to 4.5 percent at the end of January, future data will need to be stronger to justify hikes beyond that, he said.

The US dollar had gained against the euro on Thursday and earlier on Friday. The euro dropped as low as US$1.2027 after the US published solid trade data on Thursday and European Central Bank president Jean-Claude Trichet failed to indicate a rate hike in February.

In late New York trade, the dollar stood at 1.2767 Swiss francs after SF1.2854 on Thursday.

The pound was being traded at US$1.7766 after US$1.7601 late on Thursday.