Reuters: US Dollar Report: FOREX-Dollar rallies after U.S. retail sales data

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FOREX-Dollar rallies after U.S. retail sales data Aug 13th 2013, 13:18 Tue Aug 13, 2013 9:18am EDT * U.S. July consumer spending rises at fastest pace in seven months * Yen down on Nikkei report on corporate tax cut NEW YORK Aug 13 (Reuters) - The dollar climbed to a one-week high against both the euro and the yen on Tuesday after a key gauge of U.S. consumer spending rose at its fastest pace in seven months, strengthening the case for the U.S. Federal Reserve to wind down stimulus. Retail sales outside of cars, gasoline and building materials rose 0.5 percent last month, the Commerce Department said on Tuesday. July's gain was the biggest since December, and suggests the economy could be regaining steam after tax hikes and federal budget cuts dragged on growth in the first half of the year. Strong U.S. data will encourage the Federal Reserve to trim its monthly purchases of about $85 billion in bonds, perhaps as early as September. "For the next five and a half weeks every U.S. statistic will be measured by its impact on the September 18th (Federal Open Market Committee) decision," said Joseph Trevisani, chief market strategist at WorldWideMarkets, at Woodcliff Lake in New Jersey. "By that standard today's number should keep the Fed on track to curtail quantitative easing purchases in September." The euro was last down 0.2 percent at $1.3267 with the session low at $1.3255. The dollar was last up 1.2 percent at 98.10 yen. It was the biggest one-day percentage jump against the yen since August 1. Only last week the dollar was at seven week low against the yen. Earlier the euro had climbed against the dollar and jumped against the yen after a stronger-than-expected German ZEW sentiment survey added to optimism that a euro zone recovery is picking up pace. The euro was up 0.9 percent against the yen at 130.06 yen. The euro session high against the dollar was $1.3316 after the ZEW survey was released. The German ZEW investor sentiment index showed economic conditions improved in August from July. It came after data last week showed German industrial output in June surged to its fastest rate in nearly two years. "The euro is reacting to stronger than expected data, but we are not expecting it to go much higher until the central bank is prepared to change its policy stance," said UBS currency strategist Geoffrey Yu in London after the report. The European Central Bank (ECB) has pledged to keep policy accommodative and is even prepared to lower interest rates to support an economic recovery. That contrasts sharply with the signals from the U.S. central bank. The euro has drawn some support from signs of stabilization in the euro zone economy in recent weeks with yield differentials between U.S. Treasuries and German Bunds narrowing for much of this month. Euro zone gross domestic product data due on Wednesday is expected to show the region emerged from recession in the second quarter. The yen was weak across the board after a report in business daily Nikkei, which said Japanese Prime Minister Shinzo Abe is considering a corporate tax cut as a way to offset the potential economic drag of a planned hike in sales tax. Investors who have been betting Abe will succeed in pulling Japan out of deflation have been hoping for more steps to boost the economy on top of aggressive fiscal and monetary policies. "There have been concerns that Abe may make changes to the planned tax hike, backpedalling on reforms. But if you believe today's media report, Abe is heading for a right direction," said Yunosuke Ikedam, Nomura senior FX strategist in London. The tax cut report boosted Japanese shares and provided further support for dollar/yen, which has had a strong correlation with Japanese equities in recent months. Link this Share this Digg this Email Reprints

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