NEW YORK (MarketWatch) — The dollar resumed a decline against the euro and other major currencies Tuesday, after a pair of U.S. economic reports bolstered equities as well as hopes that the U.S. economy has not slipped back into recession.
“The rally in risk indicates that investors are relieved that the economic outlook is only grim and not atrocious,” said Kathy Lien, director of currency research for GFT.
Lakshman Achuthan, co-founder and managing director of the Economic Cycle Research Institute, sees a long, drawn-out slowdown ahead for the U.S. economy, including more sluggish jobs growth that could be around for months to come.
The U.S. data followed strong economic data in China and a surprise tightening move from the People’s Bank of China.
The dollar index /quotes/zigman/1652083 DXY +0.10% , which measures the performance of the U.S. unit against a basket of six currencies, fell to 74.354, from 74.371 before the data and lower than 74.501 seen in late North American trading Monday.
The euro /quotes/zigman/4867933/sampled EURUSD -0.0866% rose to $1.4463 from $1.4417 Monday. It rose as high as $1.4497 in earlier action. See real-time currency quotes and tools.
The dollar frequently has benefited when falling stocks and commodities leave investors less willing to put money in such risky assets, and instead favor the relative safety of lower-yielding currencies including the greenback.
Traders also took a sanguine view on the reports, saying a meeting of euro-zone officials in Brussels was unlikely to result in a decision about a coming aid package. German finance minister Wolfgang Schaeuble said the officials were getting ready for further meetings, according to Dow Jones Newswires.
Next week, finance ministers are expected to finalize some key decisions, to be voted on by European Union leaders on June 24, said Kathleen Brooks, research director at Forex.com.
The sticking points “are the size of the new bailout, the source of new funds and the extent of private-sector burden sharing — the most contentious point,” she added. The new bailout may cover the next three years and could be as high as 120 billion euros.
At the same time, traders noted a bond sale worth 5 billion euros by the European Financial Stability Facility to fund a loan to Portugal — reminding investors of continued fiscal problems in other countries that share the euro.
The dollar briefly pared gains in morning trading after a report said U.S. retail sales fell in May for the first time in 11 months, due to weak auto sales, the Commerce Department said. However, excluding autos, sales rose 0.3%, a little better than some analysts predicted. Read story on retail sales.
“The decline in retail sales was not as sharp as the market had feared,” GFT’s Lien wrote in a note. “Expectations for both U.S. and Chinese economic data were so low that the movements in the markets today can be best described as a relief rally.”
A separate report showed producer prices rose at a slower pace. See more on producer-price index.
U.S.equities rallied, pushing the Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA +1.03% up 1.3% and over the 12,000 mark. Read more on U.S. stocks.