Dollar Retreats From 12-Year High on Fed Rate Resolve Questions

Yellen Calls Shots on Euro-Dollar Parity: Foley

After pushing the dollar to its strongest level in 12 years, the bulls are in retreat. At least for now.

A gauge of the dollar weakened for the first time in seven days as investors assess how the Federal Reserve may adjust the timing of an interest-rate increase when the central bank’s policy committee meets next week. The U.S. currency extended losses after a report showed retail sales unexpectedly dropped last month.

“The U.S. dollar has overshot,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York, said by e-mail. The currency fell because of “weaker data, stretched positioning and rich valuation,” he said.

The dollar weakened 0.8 percent to $1.0635 per euro as of 5 p.m. New York time, after touching $1.0495, the strongest level since January 2003. The U.S. currency was 0.1 percent lower at 121.29 yen, after climbing to a 7 1/2-year high of 122.03 on Tuesday.

Sales at U.S. retailers decreased in February for a third consecutive month as inclement weather and low wage gains restrained shoppers.

Consumer Mood

The 0.6 percent drop followed a 0.8 percent decrease in January, Commerce Department figures showed. The median forecast of 86 economists surveyed by Bloomberg projected a 0.3 percent gain.

“Retail sales have been one of the biggest stumbling blocks for the dollar,” Alfonso Esparza, senior currency analyst in Toronto at Oanda Corp., said by phone. “The rally now is on pause” before next week’s Fed meeting, he said.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, declined 0.4 percent to 1,212.27, falling from the highest level in data going back to 2004. The gauge had gained for six straight days and is up 7.2 percent this year.

The 14-day relative-strength index for the dollar gauge has exceeded 70 since March 5, a signal that gains may have become overdone.

“It’s disappointing” that lower gasoline prices didn’t translate into higher U.S. retail sales, said Ben Pace, the New York-based chief investment officer at HPM Partners LLC, which oversees $5.5 billion of assets. “The markets got a little bit nervous about how quickly the euro and some other currencies around the world were falling.”

ECB Policy

With the European Central Bank embarking on its 60 billion euro-a-month ($63 billion) bond-buying program, investors are debating whether the Fed will maintain its pledge to be patient on tightening policy.

“The market’s becoming a bit more cautious and there’s been a lot of talk these past few days: can the trend continue, are we going to see parity in the next couple of days?” said Thu Lan Nguyen, a strategist at Commerzbank AG in Frankfurt, referring to the euro-dollar rate. “It could just be a correction for now.” The Fed “has the potential to cause a serious correction if they’re more dovish than many expect,” she said.

The euro is poised for its biggest quarterly loss on record against the dollar after ECB President Mario Draghi reiterated Wednesday the central bank’s commitment to spurring inflation. Its 12 percent decline this year, with almost three weeks before the quarter ends, eclipses the 11 percent slide in the third quarter of 2008.

The ECB’s 1.1 trillion-euro quantitative-easing program entered its fourth day Thursday. The Fed’s meeting next week comes against a backdrop of reports showing strength in the U.S. labor market, fueling speculation policy makers will lay the groundwork for the first rate increase since 2006.

After the news of the retail sales decline, the odds of a rate boost by the central bank’s June meeting were at 19 percent, compared with 21 percent Wednesday, according to futures data compiled by Bloomberg.

New Zealand’s dollar surged after its central bank left borrowing costs at the highest in the developed world, bucking a global policy easing trend. The kiwi climbed 1.3 percent to 73.87 U.S. cents, rebounding from almost a four-year low.

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