Dollar up despite retail data; soars vs. pound

The release of U.S. retail sales and oil's turn up didn't halt dollar momentum Wednesday, and the rout of the British pound continued amid England's economic woes.

The 15-nation euro slid to $1.4875 in New York Wednesday morning from $1.4916 late Tuesday. The euro fell below $1.50 on Friday for the first time since February and is well off its high of $1.6038 set on July 15.

The British pound, meanwhile, sank to $1.8662 from $1.8997 the night before. The currency is at its lowest point against the dollar since October 2006.

On Wednesday, the British government said the jobless rate grew, while the Bank of England said that inflation will jump to 5 percent before retreating. The central bank finds itself in a bind: Cutting interest rates may send inflation higher, but tightening rates to fight it could slow economic growth — dangerous in the face of rising unemployment.

Higher interest rates can prop up a currency, as investors earn higher returns on their investments, while cutting interest rates often sends currencies spiraling lower.

On this side of the Atlantic, July retail sales fell by 0.1 percent, the first decline since February. It was a worse report than expected. The Commerce Department also said Wednesday that businesses added to their inventories in June at a 0.7 percent pace, the fastest rate in five months.

But the disheartening reports, which pulled Wall Street lower, couldn't burst the dollar bubble.

"Last week was a watershed week for the dollar," said Meg Brown, senior currency strategist at Brown Brothers Harriman. "The trend has changed against the euro."

And the soft retail sales, while indicative of slower growth, didn't suggest a contraction, or recession in the U.S., she said, while other countries do seem to be contracting.

The dollar's skyrocket against the euro began last week after the European Central Bank and the Bank of England kept their key interest rates unchanged.

ECB President Jean-Claude Trichet acknowledged an economic slowdown in the euro zone, and concern over high inflation, but gave no signal that a rate hike was planned.

But the greenback fell to 1.0871 Swiss francs from 1.0880 francs and slumped to 108.57 Japanese yen from 109.40 yen, despite the announcement from the Japanese government that its gross domestic product contracted in the April-June period for the first time in a year.

GDP contraction often heralds a recession, but Japanese officials said the downturn won't be as severe as the "lost decade" cratering of the 1990s.

"Japanese domestic factors haven't been what's driving the yen," Brown said. "There's been a sell-off in the yen crosses, it has weighed on the euro and it's certainly weighed on sterling."

Currencies are traded in pairs. Investors who bet that the euro or pound would strengthen while the yen weakened are curtailing those bets, driving up the yen in comparison to the dollar.

In other New York trading this morning, the U.S. currency rose to 1.0675 Canadian dollars from 1.0621, even as oil rose jumped almost $2.

Canada's currency, the loonie, saw many gains last year on the back of rising oil and gold prices. Canada is a big exporter of commodities.

Back To Top

	ECB, BoE leave interest rates unchanged	Associated Press	Tue Aug 5	0
	Dollar trades mixed, gold falls in Europe	Associated Press	Fri Aug 8	1
	Oil drops to near $112 as storm threat eases	Associated Press	Tue Aug 12	2