Dollar Drops Versus Euro on Speculation U.S. Retail Sales Fell

By Stanley White

Jan. 14 (Bloomberg) -- The dollar declined from a five-week high against the euro on speculation U.S. retail sales fell for a sixth month and manufacturing weakened as a recession spread through the world’s largest economy.

The dollar also fell for the first day in four versus the British pound after Federal Reserve Chairman Ben S. Bernanke said fiscal policy alone won’t lead to a lasting recovery in economic growth. The Australian dollar rose from a four-week low on speculation a rebound in Asian stocks will give investors the confidence to buy higher-yielding assets overseas.

“Some traders are reducing their bets that the dollar will gain against the euro,” said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. in Tokyo. “America leads the pack when it comes to bad economic news.”

The dollar weakened to $1.3245 versus the euro as of 10:48 a.m. in Tokyo from $1.3182 late yesterday in New York, when it touched $1.3141, the strongest level since Dec. 11. The dollar bought 89.44 yen from 89.38 yen. The euro traded at 118.48 yen from 117.81 yen. The British pound rose to $1.4567 from $1.4501. The dollar may advance to $1.35 per euro this week, Matsumoto said.

The Australian dollar advanced to 67.26 U.S. cents from 66.46 cents late yesterday in New York. The New Zealand dollar was little changed at 55.34 U.S. cents. The MSCI Asia-Pacific Index of regional shares rose 1.1 percent, ending a four-day losing streak, as gains in oil prices boosted shares of energy producers.

Benchmark interest rates are 4.25 percent in Australia, 5 percent in New Zealand, 0.1 percent in Japan and range from zero to 0.25 percent in the U.S.

U.S. Economy

U.S. retail sales fell 1.2 percent in December, extending the longest run of declines since records began in 1992, according to a Bloomberg New survey of economists. The Commerce Department will release the data at 8:30 a.m. in Washington today. Fed surveys due tomorrow from the New York and Philadelphia regions are also forecast to show manufacturing contracted this month.

“More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets,” Bernanke said in a speech yesterday in London.

“We expect U.S. retail sales to worsen significantly,” Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. “There’s a high chance that the dollar will face renewed selling pressure versus the yen.”

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.