July 16, 2012 / 1:48 PM / 5 years ago

FOREX-Euro broadly weaker; dollar falls on poor retail sales

* Euro eases vs dollar, hits 3-1/2-year low vs sterling
    * Losses vs dollar tempered before Fed chief's testimony
    * Dollar falls to four-week low against yen
    * Poor U.S. retail sales weigh on dollar


    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 16 (Reuters) - The euro retreated against
most currencies on Monday, hitting a 3-1/2-year low against
sterling and a six-week low versus the yen, as investors fretted
about the delay in mobilizing bailout funds for troubled euro
zone states.
    The euro zone's common currency slipped against the dollar,
losing in four of the last five session, although falls were
mitigated by poor U.S. retail sales data in June. The report
bolstered expectations about another round of quantitative
easing from the U.S. Federal Reserve, which spurred dollar
selling against the yen.
    Investors will therefore closely watch testimony by Fed
Chairman Ben Bernanke this week for hints about U.S. monetary
policy action. 
    Ahead of that, the downtrend for the euro remained intact on
Monday.
    "The euro's losses were mainly a result of the uncertainty
surrounding the bailout fund due to court issues. The
implementation of that fund just keeps getting pushed back,"
said Greg Moore, currency strategist at TD Securities in
Toronto.
    Germany's Constitutional Court said on Monday it would not
rule until Sept. 12 on whether the euro zone's bailout fund --
the European Stability Mechanism -- and planned changes to the
region's budget rules are compatible with German
law. 
    But the euro trimmed losses after an unexpected contraction
in U.S. retail sales last month. Retail sales fell 0.5 percent
last month where economists had expected a gain of 0.2 percent.
Ex-autos, sales dropped 0.4 percent. 
    "The poor reading on retail sales will have forecasters,
including CIBC, nudging down already mediocre estimates for
second-quarter growth," said Avery Shenfeld, chief economist at
CIBC World Markets in Toronto.
    "The soft patch in the U.S. economy looks just a bit softer
after today's news. Negative for cyclical equities, a plus for
fixed income," he added.
    In early New York trading, the euro slipped 0.1
percent against the dollar to $1.2239. It fell as low as
$1.2173, not far from a two-year low of around $1.2160 hit last
week, although it recouped some of 
    It fell to 78.41 pence against sterling, its
weakest since late 2008, but was last at 78.39 pence, down 0.3
percent. The euro also dropped to 96.14 yen, its
lowest since June 1, and hit a record low against the Canadian
dollar.
    A report suggesting a change in the European Central Bank's
stance on how some bondholders could be treated under Spain's
bank bailout added to pressure on the common currency.
    Investors have stepped up sales of the euro, disheartened by
a lack of progress towards solving the bloc's spiraling fiscal
crisis.
    A report in the Wall Street Journal said ECB President Mario
Draghi advocated imposing losses on holders of senior bonds
issued by the worst-hit Spanish savings banks.
    The ECB declined to comment on the report, which said
finance ministers rejected the advice due to concerns financial
markets would react badly to such a decision. 
    The dollar slid 0.5 percent against the yen to 78.78
yen, adding to losses after the soft U.S. retail sales data. 
    Investors could further sell the dollar if Bernanke hints in
testimony on Tuesday and Wednesday at the possibility of more
quantitative easing to boost the U.S. economy. 
    The Fed last month expanded efforts to keep long-term
interest rates low by saying it would buy an additional $267
billion in long-dated bonds while selling short-term securities,
but it held off from a third round of outright bond purchases.

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