Weak Retail Sales Report Sends Dollar Back to Rally Mode

Dow Jones Newswires

The dollar climbed against its main rivals Friday after a surprisingly weak retail-sales report on Thursday put its recent breakneck ascent on hold momentarily.

The dollar (USDJPY) was at Yen121.50, compared with Yen121.26 late Thursday in New York. Meanwhile, the euro (EURUSD) traded at $1.0580, compared with $1.0634 late Thursday.

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The euro hit a 12-year low around $1.05 during the Asia trading day Thursday.

The dollar's rebound Friday reveals the durability of its monthslong rally, as disappointing fundamental data like Thursday's retail-sales report only slowed the dollar's march higher for one session, said Boris Schlossberg, managing director of FX strategy at BK Asset Management, in a research note.

In the U.K., the pound (GBPUSD) traded at $1.4795, its lowest level since June 2010, compared with $1.4896 Thursday.

The pound's rapid depreciation -- falling from $1.55 to its current level in three weeks -- has taken many traders by surprise, said Jameel Ahmad, in Friday research note.

Ahmad said that investors' worries over the outcome of the coming U.K. election have driven volatility in recent weeks.

"There was so much volatility when the Scottish referendum happened a few months ago, investors are being tentative toward the pound and closing out their positions. They don't want to see the volatility we saw in the week leading up to the vote," Ahmad said.

The pound dropped from about $1.6600 to $1.6000 in the week leading up to the referendum, which was held on Sept. 18.

If the U.K.'s conservative party, led by Prime Minister David Cameron, wins the election in May, it could schedule a referendum to leave the European Union for the 2017 election cycle. A referendum would lead to two years of "will they or won't they" worries about a U.K. exit, which in turn could lead to more volatility in the pound.

On Thursday afternoon, Bank of England Governor Mark Carney said stubbornly low inflation could force the central bank to delay a rate hike, signaling an abrupt shift in tone. The comments continued to weigh on the pound Friday, Ahmad said.

"Two weeks ago, he was relatively cavalier about inflation, and yesterday he was more downbeat," Ahmad said.

Meanwhile, the ICE U.S. Dollar Index (DXY), a measure of the dollar's strength against a basket of six currencies, was up 0.28% to 99.7310 in recent trade.