Dollar wilts on weak US retail sales, shift in Fed outlook
NEW YORK, Sept 12, 2008 (AFP) - The dollar stumbled Friday on an unexpected fall in US retail sales in anxious trading reflecting market uncertainty surrounding the fate of ailing US investment giant Lehman Brothers.
The euro jumped to 1.4229 dollars at 2100 GMT, up sharply from 1.3969 late Thursday in New York.
But the dollar managed to rise to 107.92 yen against 107.05 on Thursday after data showing the Japanese economy faltered badly in the three months to June.
Japan's economy posted its sharpest contraction in nearly seven years last quarter, shrinking at an annualized 3.0 percent in the three months through June, worse than the 2.4 percent previously thought,
Against the euro, the dollar was weighed down by news that US retail sales fell 0.3 percent in August from July as a government fiscal stimulus faded.
The figure, released by the Commerce Department, surprised analysts who had expected a gain in sales of 0.3 percent.
"Retail sales figures for this month (August) are quite disappointing and show that there is no support to consumer spending in the third quarter as the fiscal stimulus fades," said Amine Tazi, analyst at Natixis.
"We don't expect any recovery in the coming months -- consumption is likely to be negative," Tazi said.
Citigroup analysts said "weakness in the retail sales report reveals further underlying deterioration in the US economy."
Analysts said investors remained unsettled by prospects for embattled Lehman Brothers, whose share meltdown continued Friday and as the US government scrambled to find a buyer.
Shares in Lehman fell 13.5 percent on the heels of a near 42 percent slide Thursday.
Speculation swirled over a deal to save the venerable Wall Street firm amid ongoing debate on whether the US government should "backstop" any arrangement with credit guarantees, a decision widely criticized in the takeover of Bear Stearns earlier this year.
Neil Mellor at Bank of New York Mellon said economic fundamentals have apparently taken a back seat in the foreign exchange market.
"Given that activity in the foreign exchange markets of late has been so closely related to risk appetite in general, anticipated announcements relating to Lehman Brothers over the weekend may well prove the principal point of focus as next week gets underway," he said.
"As such, economic fundamentals and central bank policy may remain on the sidelines for a while longer."
Still, analysts said markets will pay close attention to Tuesday's Federal Reserve meeting for any hint of a rate cut instead of the increase suggested in recent weeks.
"Disappointing US retail sales and bearish producer prices (inflation) played a role in the move, but the data also helped to shift Federal Reserve interest rate expectations," said Terri Belkas at Forex Capital Management.
"We've seen that speculation over rate increased by the Fed fueled much of the dollar rally since mid-July, but now traders are actually weighing the odds of a potential rate cut as soon as next week. If this sentiment holds, the US dollar decline could last for quite some time."
In late New York trade, the dollar stood at 1.1293 Swiss francs from 1.1391 Thursday.
The pound rose sharply to 1.7940 dollars after 1.7552.
burs/rl/mlm
Forex-US
