Dollar falls after stronger-than-expected retail sales data, yuan falls to 9-month low

By Hannah Lang, Joice Alves and Samuel Indyk

WASHINGTON/LONDON (Reuters) – The dollar index was lower after data showed U.S. retail sales increased more than expected in July, while the yuan sank to a nine-month trough on Tuesday after China’s central bank unexpectedly cut key policy rates.

U.S. retail sales jumped 0.7% last month, the Commerce Department said, demonstrating that demand has remained resilient despite the Federal Reserve’s aggressive interest rate hikes to tame inflation, thanks to strong wage gains from a tight labor market.

The dollar index, which measures the currency against six peers including the euro and sterling, dropped 0.194% to 102.920 after hitting a 1-1/2-month high at 103.46 on Monday.

The dollar gained over 0.5% against the offshore yuan to a nine-month high of 7.3307 as the People’s Bank of China (PBOC) cut its rates in an effort to boost a sputtering economic recovery.

Punctuating those worries, Chinese data on industrial output, retail sales and investment released shortly after the PBOC’s rate cut showed unexpected slowdowns.

“I think the strong U.S. sales data provided some relief to the negative surprise in the Chinese data, so this has pushed risk back up,” said John Velis, head of Americas macro strategy at BNY Mellon Markets in New York.

YEN WATCH

Against the yen, the U.S. dollar pushed to a fresh nine-month high of 145.865, before dropping to a session low at 145.25. It was last trading at 145.28 per yen.

Traders are looking for any hints of intervention, after the dollar’s surge above 145 last autumn triggered the first yen buying by Japanese officials in a generation.

“We could definitely see more verbal interventions, but unless the move is driven by speculators and the yen is out of sync with other currencies, maybe there’s still some way to go before the actual intervention comes,” said Shinichiro Kadota, a currency strategist at Barclays.

“In any case, I think concerns about intervention is definitely putting a lid on the dollar-yen around these levels.”

Japanese Finance Minister Shunichi Suzuki said on Tuesday that authorities are not targeting absolute currency levels when it comes to intervening in the market.

Elsewhere, sterling rose after data showed British basic wages grew at a record pace, adding to the Bank of England’s inflation worries.

The pound was last 0.38% higher at $1.27335 following data showing British wages excluding bonuses were 7.8% higher than a year earlier in the three months to June. That represented the highest annual growth rate since comparable records began in 2001.

The UK unemployment rate, however, unexpectedly rose to 4.2% from 4.0%, but money market traders still expect the Bank of England to raise rates by at least 25 basis points next month on worries high pay growth will lead to second-round effects on inflation.

The euro was last up 0.28% to $1.0935.

The Russian rouble gave up early gains after Russia’s central bank lifted its key interest rate by 350 basis points to 12% at an emergency meeting to try and halt the currency from weakening past 100 to the dollar after a public call from the Kremlin for tighter monetary policy.

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Currency bid prices at 10:30AM (1430 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 102.9200 103.1400 -0.19% -0.551% +103.2800 +102.8000

Euro/Dollar $1.0935 $1.0905 +0.28% +2.05% +$1.0952 +$1.0896

Dollar/Yen 145.2700 145.5650 -0.18% +10.83% +145.8600 +145.2150

Euro/Yen 158.86 158.71 +0.09% +13.23% +159.3300 +158.5500

Dollar/Swiss 0.8764 0.8783 -0.18% -5.18% +0.8796 +0.8745

Sterling/Dollar $1.2733 $1.2685 +0.38% +5.29% +$1.2740 +$1.2680

Dollar/Canadian 1.3484 1.3463 +0.19% -0.45% +1.3500 +1.3440

Aussie/Dollar $0.6472 $0.6488 -0.23% -5.04% +$0.6522 +$0.6456

Euro/Swiss 0.9582 0.9578 +0.04% -3.16% +0.9596 +0.9568

Euro/Sterling 0.8585 0.8594 -0.10% -2.93% +0.8609 +0.8583

NZ $0.5973 $0.5975 -0.05% -5.95% +$0.5996 +$0.5957

Dollar/Dollar

Dollar/Norway 10.5010 10.4770 +0.32% +7.10% +10.5200 +10.4510

Euro/Norway 11.4834 11.4223 +0.53% +9.43% +11.4915 +11.4014

Dollar/Sweden 10.8142 10.7689 +0.52% +3.90% +10.8677 +10.7734

Euro/Sweden 11.8261 11.7648 +0.52% +6.07% +11.8670 +11.7565

(Reporting by Hannah Lang in Washington and Joice Alves and Samuel Indyk in London; additional reporting by Brigid Riley and Kevin Buckland; Editing by Susan Fenton and Jonathan Oatis)