Weak U.S. retail sales pressure dollar/yen; euro weakens

The dollar edged lower versus the yen on Friday as dismal U.S. retail sales data reinforced expectations the Federal Reserve will not raise rates this year, while the market awaited developments in trade talks between Washington and Beijing.
U.S. retail sales posted their largest decline since September 2009, data showed on Thursday, a sign of weakness in the consumer sector, which accounts for more than two-thirds of the economy.
“Poor retail sales data has reinforced the view that the Fed will most likely keep rates steady this year,” said Nick Twidale, chief operating officer, Rakuten Securities Australia.
“Dollar and yen is indicative of the risk averse sentiment right now…I am expecting the yen crosses to appreciate along with the Swiss franc.”
The dollar lost about 0.5 per cent against the safe-haven yen in the overnight session and was down 0.2 per cent to 110.26 in Asian trade.
The yen rose 0.24 per cent versus the euro to 124.48, having gained around 0.2 per cent on Thursday.
The Aussie and New Zealand dollars pared earlier gains, losing 0.3 per cent to 0.7085 dollar and 0.6816 dollar, respectively.
Despite Friday’s losses, the kiwi is set to end the week higher by one per cent.
Earlier this week, the Reserve Bank of New Zealand sounded less dovish on policy than speculators had wagered on, leading traders to place bullish bets on the currency.
The dollar index, a gauge of its strength versus six major peers was marginally higher at 97.07, after weakening by 0.12 per cent in the previous session.
The main focus for the Asian market on Friday remains the outcome of the high level trade talks between the United States and China this week.
Markets had earlier in the week cheered U.S. President Donald Trump’s upbeat assessment of the talks.
White House economic adviser Larry Kudlow said the administration’s top two negotiators would meet on Friday with Chinese President Xi Jinping but that there had been no decision to extend a March 1 deadline for a deal.
Bloomberg had earlier reported that Trump was considering a six-day extension of the deadline.
U.S. tariffs on 200 billion dollars worth of imports from China are scheduled to rise to 25 per cent from 10 per cent if the two sides don’t reach a deal by then, increasing pain and costs in sectors from consumer electronics to agriculture.
Rakuten’s Twidale said that any negative news flow out of the trade discussions could push the dollar back up again, given investor demand for safe-haven assets during times of uncertainty.
The euro was 0.1 per cent lower at 1.1284 dollar. The single currency has lost 0.4 per cent this week and is down by 1.7 per cent year to date thanks to weaker-than-expected euro zone data.
Analysts expect the European Central Bank to keep monetary policy accommodative for the rest of the year, which will most likely keep a lid on the single currency.
Elsewhere, sterling was down 0.16 per cent at 1.2791 dollar. Traders expect the pound to remain volatile in the coming weeks.
Sterling is set to finish the week 1.2 per cent lower versus the dollar, its third straight week of losses.
British Prime Minister Theresa May suffered a defeat on her Brexit strategy on Thursday that undermined her pledge to European Union leaders to get her divorce deal approved if they grant her concessions.
The United Kingdom is on course to leave the European Union on March 29 without a deal unless Prime Minister Theresa May can persuade the bloc to amend the divorce deal she agreed last year.