Dollar mixed on weak retail sales
Greenback down against yen, pound but rises on euro as investors sell equities.
NEW YORK (CNNMoney.com) -- The dollar was mixed against major currencies Wednesday following bleak reports on U.S. retail sales.
The Japanese yen lost 0.27% against the dollar, falling to ¥89.14.
The greenback was up 0.12% against the 15-nation euro, which was trading at $1.3167 from $1.3183 late Tuesday.
According to Kathy Lien, director of currency research at GFT in New York, the weak U.S. sales data led investors to sell relatively risky equities to funnel their capital into low-yielding currencies, such as the yen.
"A lot of investors are looking at retail sales and are liquidating everything in sight. This is why the dollar is lower against the yen. It has nothing to do with the fundamental outlook with the Japanese economy. It's in just as bad shape, if not worse, than the U.S.," Lien said.
The market is pricing in an expected half-percentage point rate cut to 2% Thursday when the European Central Bank meets. Lien says that even if the rate cut materializes, it's likely the euro could sink lower, especially on discouraging economic news out of Ireland.
The dollar fell 0.52% against the British pound, to $1.4577.
The dollar is selling off against the pound, as investors are more optimistic on the outlook in Britain, Lien said.
"The U.K. has taken steps to stimulate their economy, with a new focus on the labor market. Traders are optimistic that these things will pay off," Lien said.
The Commerce Department reported a 2.7% plunge in retail sales in December - more than twice what economists were forecasting.
The recession not only weighed on consumer spending in the holiday sales period, but sales excluding autos fell 3.1%, more than double the expected drop.
During the height of the credit crisis, many investors abandoned equities to purchase U.S. Treasurys. Investors must buy dollars in order to purchase Treasurys, which had the effect of driving up the value of the dollar relative to other currencies.
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