Dollar Falls as Drop in Retail Sales Trims Odds of Fed Rate Rise

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The dollar weakened after a report showed sales at U.S. retailers unexpectedly fell in June, clouding the outlook for the economy as the Federal Reserve looks to raise interest rates.

The greenback dropped against most of its major peers after retail sales declined by 0.3 percent in June, less than the 0.3 percent gain forecast by analysts surveyed by Bloomberg, following a revised 1 percent increase in May. Traders pushed back the projected timing for the Fed to increase rates for the first time in almost a decade, as Fed Chair Janet Yellen will address Congress this week on the U.S. economic outlook.

“It puts the dollar on the back foot temporarily,” Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG in New York, said by e-mail. “But with the Bank of Canada meeting tomorrow and Yellen’s testimony, it remains to be seen how long the U.S. dollar weakness sticks around.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major peers, fell 0.2 percent to 1,194.33 at 5 p.m. in New York, trimming its earlier drop. The dollar fell 0.1 percent to $1.1009 per euro and was little changed at 123.40 yen.

“The U.S. dollar is a little weak on consolidation after yesterday’s rally on the Greece deal along with weaker retail sales this morning,” Scott Smith, senior market analyst at Cambridge Global Payments, a global foreign-exchange and payments provider, said from Calgary.

Yellen Script

The probability of a Fed rate increase at its September meeting fell to 29 percent from 35 percent on Monday, according to futures data compiled by Bloomberg. For December, the odds fell to 65 percent from 69 percent. The central bank has held its fed funds target at virtually zero since December 2008 to bolster economic growth.

Yellen will appear before Congress to give her semi-annual monetary policy testimony Wednesday and Thursday.

“There is no reason to expect a substantive change” from Yellen, Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., said in a note. “She stuck to her script last week regarding scope for one to two rate hikes this year, provided slack in the labor market continues to be absorbed.”

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