Dollar drops on tepid U.S. retail sales but later recovers on short covering: Aug 15, 2016

 Market Review - 13/08/2016 08:41GMT

Dollar drops on tepid U.S. retail sales but later recovers on short covering

The greenback weakened against other major currencies (except versus the British pound) on Friday as release of disappointing U.S. retail sales reports, producer prices and a guage of consumer sentiment raised concerns about the strength of third-quarter economic growth, however, short-covering ahead of weekend holiday helped dollar to pare intra-day losses..

Versus the Japanese yen, although dollar edged higher from 101.77 at Asian open and rose to 102.27 in European morning, renewed cross-buying in yen versus other major currencies checked intra-day gain there and price tumbled to 100.93 in New York morning after data showed that U.S. retail sales were unexpectedly flat in July and producer prices unexpectedly fell in the month. Later, the pair continued to weaken after another report showed that U.S. consumer sentiment rose less than expected in August and fell to 100.84 before recovering to 101.32 near the close.

The single currency moved sideways in a relatively narrow range of 1.1131-1.1144 in Asia on Friday before edging higher to 1.1159 in European morning. Later, price rallied above Thursday's high of 1.1192 to 1.1122 in New York morning on broad-based dollar's weakness following the release of tepid U.S retail sales and producer prices but offers below last Tue's 6-week peak at 1.1234 capped intra-day gain there and euro quickly retreated and later fell back to 1.1158 ahead of New York close.

Data on Friday showed that US retail sales were unchanged in July. The stall in retail sales followed an increase of 0.8% in June, the Commerce Department said. Market had forecast a gain of 0.4%. Meanwhile, U.S. core retail sales (ex-autos) came in at a seasonally adjusted -0.3%, from 0.9% in the preceding month whose figure was revised up from 0.7%. Separately, official data said on Friday that U.S. PPI unexpectedly fell to a seasonally adjusted -0.4%, from 0.5% in the preceding month.

Later in New York morning, a report showed that U.S. consumer sentiment rose less than expected in August, though the expectations gauge showed that consumers were more optimistic than forecast. The preliminary publication of the data for August from the University of Michigan's Consumer Survey Center showed that consumer sentiment rose to 90.4, from July's reading of 90.0. Market had forecast a larger increase to 91.5.

Elsewhere, the British pound went through a roller-coaster session against the greenback on Friday but traded lower near New York afternoon. During the day, cable rebounded from 1.2949 to 1.2979 in Asia and then fell to 1.2939 in European morning. Later, price spiked up to 1.3035 in New York morning on downbeat U.S. data but only to tumble to a fresh one-month low of 1.2904 in part due to cross-selling in sterling versus other major currencies.

In other news, Reuters reported on Friday - China's economy is still in a period of adjustment and facing downward pressure, a spokesman for the statistics bureau said on Friday.

Investment growth is slowing, statistics bureau spokesman Sheng Laiyun told reporters after the bureau published China's July activity indicators.

The decline in private investment growth is not only related to a lack of market access to services and emerging industries, but also related to funding, policy implementation challenges, Sheng added.

Data to be released this week:

Japan GDP, industrial production, capacity utilization, Swiss producer and import price, U.S. NY Empire State manufacturing index, NAHB housing market index and treasury international capital flows on Monday.

U.K. CPI, RPI, PPI, DCLG house price index, Eurozone trade balance, ZEW survey, Germany ZEW survey, U.S. CPI, building permits, housing starts, Redbook index, industrial output, manufacturing output, capacity utilization and Canada manufacturing sales on Tuesday.

New Zealand PPI, unemployment rate, employment change, participation rate, Australia Westpac leading index, wage price index, U.K. unemployment change, unemployment rate, average earnings, Swiss ZEW survey and U.S. MBA mortgage application on Wednesday.

Japan exports, imports, trade balance, Australia employment change, unemployment rate, participation rate, France unemployment rate, Eurozone current account, CPI, U.K. retail sales, U.S. initial jobless claims, Philadelphia Fed business index and leading index change on Thursday.

Japan all industry activity index, Germany producer price, U.K. public sector net borrowing, Canada CPI and retail sales on Friday.