Sun, Feb 15, 2015 page15

• US dollar slips as retail sales drop unexpectedly

  • Bloomberg
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  The US dollar fell the most in nearly five months after a report showed retail sales dropped more than forecast, casting doubt on the pace of US growth, which has been one of the few bright spots in the global economy.

  The US Federal Reserve is considering when to raise interest rates amid a wave of global easing that has seen more than 10 central banks add stimulus this year in an attempt to bolster growth. Sweden’s central bank became the latest to ease, sending the krona to its weakest since April 2009.

  “One of the pillars of the dollar strength is the fact that the US economy so far shows that it’s able to withstand a lot of these macro-economic headwinds,” said Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange Inc in Washington. “If we start to see some chinks in that armor and some data point to the fact that US may not be weathering that storm quite as well as expected, then I think certainly the dollar becomes more vulnerable.”

  The Bloomberg Dollar Spot Index slipped 1 percent to 1,163.11 as of 5pm in New York, the biggest loss since Sept. 18. The measure, based on data back to 2004, closed at an all-time high on Wednesday.

  The greenback slipped 1.1 percent to ￥119.11 and 0.6 percent to US$1.1403 per euro. The yen rallied after reports that Bank of Japan policymakers deem further easing counterproductive.

  The US currency weakened versus most of its 16 major counterparts as lower fuel prices and higher wagers failed to spur an uptick in retail sales, which fell for a second month last month. The US economy is forecast to expand 3.1 percent this year versus 1.2 percent for the euro nations.

  Traders tempered expectations for higher interest rates in response. Futures contracts show a 56 percent likelihood that the Fed will raise rates by September, down from 59 percent on Wednesday. The central bank has held its federal funds target rate at virtually zero since 2008.

  The US dollar is the best performer during the past six months among a basket of 10 currencies tracked by Bloomberg Correlation-Weighted Indexes, adding 15 percent.

  The British pound advanced this week, touching the strongest level against the euro since 2008, as the Bank of England (BOE) said a slump in consumer prices will be temporary, with inflation likely to exceed its target by three years from now.

  The sterling rose for a third week versus the US dollar as a report showed Germany’s growth beat analysts forecasts, reducing concern the euro-region economy will be a drag on Britain. The pound appreciated 0.9 percent to US$1.5380. While UK inflation may drop below zero in the coming months, it will breach the BOE’s 2 percent goal by 2018, according to its quarterly report on Thursday. The central bank also raised its growth outlook for next year and 2017. UK government bonds fell for a second week.

  Traders are getting that sinking feeling again about developing-nation currencies.

  A basket of 20 of the currencies has tumbled 3.3 percent this year through Wednesday to the lowest since Bloomberg began tracking the data in 1999. The losses have left emerging-market options traders bracing for more: They are now paying the most in almost 17 months to protect against further declines.

  The deepening pessimism underscores just how out of favor developing-nation assets have become as a plunge in commodity prices throttles their economies and darlings from Brazil to China lose their shine. Investors are also increasingly turned off by the interest rate cuts carried out by the likes of Turkey and Russia — moves that were aimed at shoring up growth, but which portend diminished returns on fixed-income assets.

  “There’s a lot more room for emerging-market currencies to weaken,” Daniel Tenengauzer, head of emerging-market and global foreign-exchange strategy at RBC Capital Markets LLC, said by telephone from New York. “Some of the big EM [emerging market] countries are not in a good shape.”

  The Bloomberg gauge of developing-nation exchange rates dropped to 78.34 on Wednesday, leaving it down 28 percent since it peaked in April 2011.

  The emerging-market index rose 0.5 percent on Friday after the leaders of Russia, Ukraine, Germany and France agreed on Thursday to a ceasefire to stem a conflict that has killed thousands of people. The index is still down 2.8 percent this year.

  The losses have been fueled by speculation the US Federal Reserve plans to boost interest rates soon, luring money from developing markets to the US as economic growth there strengthens.

  There has been no shortage of catalysts for the declines coming from the developing world.

  In Brazil, a kickback scandal ensnaring state-controlled oil producer Petroleo Brasileiro SA is roiling the nation’s financial markets and prompting renewed calls for the impeachment of Brazilian President Dilma Rousseff. A report showing a record decline in retail sales for December last year on Wednesday sent the real to as low as 2.8819 per US dollar, the weakest since October 2004.

  Money is also pouring out of China as the world’s second-largest economy slows. The country recorded capital outflows of US$91 billion in the fourth quarter, the most since at least 1998. The government reported this week a 20 percent drop in imports for last month that was the biggest in five years. The yuan is hovering near an eight-month low reached on Feb. 2. It closed at 6.2405 a dollar in Shanghai, China Foreign Exchange Trade System prices show.

  The New Taiwan dollar rose the most in more than a year. On Friday, it appreciated 0.5 percent, the most since August 2013, to NT$31.472 against the greenback as of 10:45am local time, Taipei Forex Inc prices show. It rose 0.1 percent this week to close at NT$31.475 on Friday.
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