(Reuters) – The dollar fell to a one-month low against the yen on Monday after poor June U.S. retail sales data bolstered speculation the Federal Reserve may 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 did reverse early losses against the dollar in the aftermath of the weak U.S. retail sales number, but investors cautioned it was not the start of a strong uptrend.
Instead, investors have temporarily shifted their focus to the U.S. economy from euro zone debt concerns after Monday’s weak U.S. numbers 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 late afternoon New York trading, the dollar slid 0.4 percent against the yen to 78.82 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 sell the dollar more if Bernanke hints in testimony to Congress 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 late afternoon New York trade, the euro rose 0.2 percent against the dollar to $1.2277, with a peak of $1.2290. It earlier fell as low as $1.2173, not far from a two-year low hit last week.
The euro also slid against sterling, to its lowest since late 2008, but was last at 78.50 pence, down 0.1 percent. The euro also dropped to 96.14 yen, its lowest since June 1, but last traded at 96.79 yen, down 0.2 percent.
The single currency hit a record low against the Canadian dollar.
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