Currencies

Tuesday May 13, 04:34 PM
Forex - Dollar gets boost from U.S. data

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LONDON (Thomson Financial) - The dollar managed a small comeback today as markets cheered stronger than expected U.S. retail sales data.

Retail sales excluding auto sales rose by 0.5 percent in April from March's 0.4 percent rise.

This beat analysts' forecasts for a 0.3 percent increase and offset news that overall sales had fallen by 0.2 percent.

Elsewhere, import price inflation slowed to 1.8 percent in April, from 2.9 percent in March. However, this is slightly above forecasts for a 1.7 percent increase, and March's figure was revised upwards.

Rhonda Staskow, an analyst at Thomson IFR Markets, said the dollar soared in the wake of the retail sales data, which mirror 'the recent positive retail sales data released last week that showed strong gains in same-store sales and in chain store sales for April'.

'Inflation concerns are also supporting the expectations of a more hawkish Federal Reserve with import prices rising ... more than expected,' said Staskow.

Today's much awaited speech from Federal Reserve Chairman Ben Bernanke yielded little.

Bernanke said the turmoil in financial markets has eased somewhat, but that the situation is still 'far from normal.'

Markets had been hoping for more but Bernanke did not oblige.

Elsewhere the pound had a rough and tumble kind of day. It initially spiked toward day highs against both the dollar and the euro, following news that inflation in the United Kingdom in April rose by far more than anticipated but soon gave up those gains over concerns about the outlook for the economy.

Official figures show that the annual CPI (NYSE: CPY - news) inflation rate increased by 3.0 percent in the year to April, way ahead of analysts' expectations for a more modest increase to 2.6 percent from the previous month's 2.5 percent.

'Although the pound did initially rally sharply following the publication of the number, its gains began to be eroded very quickly as investors absorbed the broader negative economic implications of this,' said Neil Mellor, currency strategist at Bank of New York Mellon.

Today's figures raise the prospect that BoE Governor Mervyn King will have to write a letter to Chancellor of the Exchequer Alistair Darling, possibly as soon as next month, explaining why inflation has risen by more than a percentage point above the 2 percent target.

The forecast-busting inflation news puts the dilemma facing the BoE in sharp relief as overnight figures showed the housing market and high street activity going into reverse.

While the Royal Institution of Chartered Surveyors said a record number of its members reported house price falls in the three months to April, the British Retail Consortium revealed that retail sales fell in April, the first time since 2005 that sales have declined for two straight months.

In the wake of the RICS and BRC releases, the pound dropped below the $1.95 mark, while the euro edged back up towards 0.80 pounds, as investors price in a growing likelihood of a BoE rate cut in June.

London 1100 GMT London 1100 GMT

U.S. dollar

yen 104.49 up from 103.77

Swiss franc 1.0514 up from 1.0485

Euro

U.S. dollar 1.5476 up from 1.5463

yen 161.74 up from 160.52

Swiss franc 1.6273 up from 1.6218

pound 0.7950 up from 0.7941

Pound

U.S. dollar 1.9456 down from 1.9468

yen 203.33 up from 202.13