The U.S. dollar firmed against the euro and yen on Friday after better-than-expected retail sales suggested consumer spending—the biggest driver of the economy—was stronger than expected in January.
However, the greenback’s Friday gains didn’t prevent it from posting its second straight weekly decline against major rivals against the backdrop of panicky global stock markets, and doubt that the Federal Reserve will raise rates in 2016.
The ICE Dollar Index DXY, +0.38% a measure of the dollar against a basket of major currencies, was up 0.4% at 95.97, but was down 1% over the week.
The dollar rose to a session-high against the yen after official data showed retail sales rose 0.2% in both January and December after an upward revision to December’s initially-weak reading. Though it has trimmed its rise after a weaker-than-expected read on February consumer sentiment.
“Retail sales were better than expected, but still not great. The number is in line with the idea that the economy is still growing at a relatively healthy clip and supports the Federal Reserve’s notion of gradual normalization,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.
The greenback USDJPY, +0.74% rose to ¥113.26 in recent trade, compared with ¥112.29 late Thursday in New York. The euro traded at EURUSD, -0.6093% $1.1255, compared with $1.1316 Thursday.
Despite Friday’s uptick, the greenback logged weekly declines against both rivals, depreciating 3% against the yen and 1% against the euro.
Since the start of 2016, the dollar has weakened against both the euro and yen as market turmoil has led global investors to the perceived havens like the Japanese currency and U.S. Treasurys. Janet Yellen’s testimony on Capitol Hill on Wednesday and Thursday also cast doubt on the likelihood that the central bank will raise rates when they next meet in March or during the rest of the year. In testimony, Yellen said financial conditions “have become less supportive to growth.”
The euro has also benefited because of the eurozone’s growing current-account surplus, analysts have said. A growing account-surplus has made the euro an attractive funding currency for so-called carry trades. The carry trade is a speculative strategy where investors borrow in one currency with relatively low interest rates then trade for a currency with higher rates, then pocket the spread.
The dollar continued to weaken even after the Bank of Japan decided to impose negative rates for the first time, a decision analysts said would typically cause the currency to weaken. Instead, the yen—also viewed as a popular funding currency for carry trades—has strengthened as investors moved into haven assets.
Worries about a strong yen drove the Nikkei Stock Average NIK, -4.84% to levels not seen since October 2014. The benchmark index closed down 4.8%, falling for the third straight session.
Comments from Japanese Finance Minister Taro Aso on Friday also helped weigh on the yen, as the minister warned investors about the surging yen, saying the government will “act appropriately” in the currency markets.
Source: MarketWatch
