Dollar Rallies as Retail Sales Gain Fuels Fed Taper Speculation

The dollar rose for a second day after retail sales gained more than forecast last month, adding to speculation the Federal Reserve will move to trim its $85 billion of monthly asset purchases at a meeting next week.

The euro fell from almost a six-week high versus the dollar as data showed industrial production in the 17 nations that share the currency contracted in October, highlighting the uneven nature of the economic recovery. The Australian dollar declined versus all of its major peers as central bank governor Glenn Stevens said the currency needs to be weaker.

“Taper is discussed more as a threat right now than as a tool, but the possibility of it still supports the dollar,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said in a phone interview.

The Bloomberg U.S. Dollar Index appreciated 0.4 percent to 1,017.49 at 5 p.m. in New York. The gauge fell as low as 1,011.73 on Dec. 10, its weakest level since Nov. 1.

The greenback gained 0.2 percent to $1.3753 per euro after falling to $1.3811 yesterday, its lowest level since Oct. 29. The U.S. currency climbed 0.9 percent to 103.38 yen, the strongest level since May 23. Japan’s currency slipped 0.7 percent to 142.18 yen per euro.

The JPMorgan Chase & Co. Global Volatility Index rose to 8.71 percent, its highest level a week.

Krona, Rupee

Sweden’s krona fell versus the most of its major counterparts after the nation’s seasonally adjusted jobless rate climbed to 8 percent last month, from 7.9 percent in November. The median prediction in a Bloomberg survey was for the rate to be unchanged. Separate data showed inflation in the Scandinavian nation fell short of analyst estimates.

The currency fell for a sixth day against the euro, depreciating 0.5 percent to 9.0741 per euro after touching the weakest since May 22, 2012.

The Indian rupee fell versus all except one of its 31 major peers on speculation the U.S. will pare stimulus that has boosted inflows to emerging markets. The currency weakened 0.9 percent to 61.83 per dollar after earlier falling 1.1 percent, the most in a month. The rupee has dropped 11 percent this year.

Trading in over-the-counter foreign-exchange options totaled $51 billion, from $56 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $15.3 billion, the largest share of trades at 30 percent. Options on the euro-dollar rate totaled $8.5 billion, or 17 percent.

Options Trade

Dollar-yen options trading was 14 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 9 percent below average.

The greenback traded at a key resistance area versus the yen from 103.38 to 130.40, according to Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co. A break above the 130.40 level still may send the dollar up to 103.74 yen, he said. Resistance refers to an area on a chart where sell orders may be clustered.

U.S. retail sales in the U.S. climbed 0.7 percent in November, the most since June, after a 0.6 percent advance in October that was larger than previously reported, Commerce Department figures showed in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 0.6 percent advance.

Dollar Supportive

“The retail sales are clearly helping the dollar,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “The dollar could bounce back against some of the currencies that have been doing particularly well, like the euro and sterling, going into the FOMC, as markets cut back on risk.”

Industrial output in the European currency bloc fell 1.1 percent in October, compared with a 0.2 percent decline the prior month, according to Eurostat, the European Union’s statistics agency in Luxembourg. The median prediction of 35 economists in a Bloomberg survey was for a 0.3 percent gain.

The European Central Bank kept its main refinancing rate unchanged at 0.25 percent at its Dec. 5 meeting. Officials also refrained from cutting the deposit rate the institution pays lenders to park cash with it overnight to less than zero.

The euro gained 9.7 percent in the past year, the biggest advance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The pound added 5.4 percent and the dollar rose 3.7 percent, while the yen fell 18 percent, the worst performer.

Euro Zone

“While there is an economic recovery in the euro area, the momentum is slowing,” said Alvin Tan, a London-based director of foreign-exchange strategy at Societe Generale SA. “But for the euro to take a sustained hit to the downside we definitely need the ECB to really move to a more dovish message.”

The Australian dollar fell versus all 16 of its most-traded counterparts after RBA Governor Stevens said that he would prefer the currency be closer to 85 U.S. cents and highlighted his preference for a weaker Aussie over lower rates to spur the economy. The currency dropped 1.2 percent to 89.37 U.S. cents after falling to the lowest since Aug. 30.

New Zealand’s kiwi fell 0.1 percent to 82.50 U.S. cents, after rallying as much as 0.8 percent.

The nation’s central bank kept its key rate at a record-low 2.5 percent today while saying the level of stimulus is becoming unnecessary. The rate will probably need to rise 2.25 percentage points over the next 2 1/4 years, Reserve Bank of New Zealand Governor Graeme Wheeler said.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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