July 16, 2012 / 4:23 PM / 5 years ago

FOREX-Dollar slides vs yen, euro on growing views of US easing

* Poor U.S. retail sales weigh on dollar
    * Investors nervous ahead of Bernanke testimony
    * Euro hits 3-1/2-year low vs sterling


    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 16 (Reuters) - The dollar fell to a one-month
low against the yen o n M onday after poor U.S. retail sales data
last month bolstered expectations the Federal Reserve could
launch another round of quantitative easing to boost a slowing
economy.
    The euro was also on the defensive against most currencies,
hitting a 3-1/2-year low against sterling and a six-week trough 
versus the yen as investors fretted about the delay in
mobilizing bailout funds for troubled euro zone states. 
    The  common currency, however, gained against the dollar,
reversing earlier losses, in the aftermath of the weak U.S.
retail sales number.
    Investors have temporarily shifted their focus to the U.S.
economy from euro zone debt concerns after Monday's weak U.S.
report and ahead of testimony by Fed Chairman Ben Bernanke on
monetary policy this week.
    U.S. retail sales fell 0.5 percent last month, though
economists had expected a gain of 0.2 percent. Ex-autos, sales
dropped 0.4 percent. 
    "I think people have started to re-price more easing coming
through from the Fed after the retail sales data," said Brian
Kim, currency strategist at RBS Securities in Stamford,
Connecticut.
    In the absence of any other negative news from the euro
zone, Kim added that market participants used negative U.S. news
as an excuse to pare back hefty short positions on the euro. 
    "We have moved quite a bit lower on the euro and there's a
bit of fatigue setting in terms of the euro downside. But
overall, the euro still has a negative bias and it is still a
sell on rallies."
    In midday trading, the dollar slid 0.5 percent against the
yen to 78.78 yen, adding to losses after the soft U.S.
retail sales data. The greenback fell as low as 78.67 yen, its
weakest level since mid-June.
    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. 
    Hedge fund manager Stephen Jen at SLJ Macro Partners in
London said he does not believe U.S. economic numbers are weak
enough to justify further quantitative easing from the Fed.    
But he added that "the Fed could try to convey their easing bias
by extending their commitment of low rates until mid-2015."
    In midday trading, the euro rose 0.1 percent against
the dollar to $1.2264. It earlier fell as low as $1.2173, not
far from a two-year low of around $1.2160 hit last week.
    The euro also slid to 78.41 pence against sterling
, its lowest since late 2008, but was last at 78.43
pence, down 0.2 percent. The euro also dropped to 96.14 yen
, its lowest since June 1, but traded at 96.60 yen by
midday, down 0.4 percent.
    The single currency further hit a record low against the
Canadian dollar.
    "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. 
    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 toward 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.

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