Dollar rallies on weak retail sales data
Greenback rebounds from 7-week low vs. euro on move to safety.
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NEW YORK (Reuters) -- The dollar rallied against most major currencies Wednesday after an unexpected decline in April's U.S. retail sales rekindled demand for the greenback as a safe haven.
The report, which showed sales at U.S. retailers slipped 0.4% last month, dimmed optimism about hopes for a rapid recovery in the world's largest economy. Economists polled by Reuters had forecast April sales would be flat after falling in March.
After being sold off the past few weeks, the dollar rose from four-month lows against a basket of six currencies and seven-week troughs against the euro. It also gained sharply against some of the higher-yielding currencies, such as the Australian and New Zealand dollars, which tracked a slide in Wall Street stocks.
"Retail sales were very disappointing for investors betting on the recovery story and for euro bulls," said Boris Schlossberg, director of FX research at GFT in New York.
"The whole trade in the currency market has been driven by that recovery," he said, and Wednesday's data belied those expectations.
The dollar's uptrend this past year was consistent with safe-haven flows as a global slowdown accelerated, with investors brushing off the country's extreme fiscal weakness. But that support is expected to fade once investors price in the United States' enormous debt load over the next several years.
In midday New York trading, the euro fell to session lows against the dollar to $1.3567, according to electronic trading platform EBS, but last traded at $1.3618, down 0.2 % on the day. The euro earlier hit hit a seven-week high of $1.3722 on EBS.
The ICE Futures' dollar index rose 0.2% on the day to 82.440, having hit a four-month low of 81.871.
The dollar fell earlier to fresh lows after an article in the Financial Times flagged a risk of the United States losing its top sovereign credit rating.
While analysts warned against reading too much into the article since the United States has run persistent and growing budget deficits for years, they said a downgrade would have huge economic, political and financial implications.
Sterling fell against the dollar after the Bank of England said it expects anemic U.K. inflation and the economy to recover more slowly than previously thought. The pound was down 0.6% on the day at $1.5177.
The British currency's sharp fall relieved some of the selling pressure on the dollar that had intensified since last week's break below key 200-day and 200-week moving average support levels on technical charts.
The euro has also broken above similar moving averages against the dollar.
GFT's Schlossberg said investors had bought currencies such as the euro and pound the last few weeks in anticipation of an economic rebound. But with the retail sales data, he said there was now "considerable doubt" in the market that this would happen anytime soon.
Meanwhile, the dollar slid 0.8 % against the yen to 95.69, a two-week low. Talk about the potential for fund repatriation flows from Japanese investors related to redemptions and coupon payments on U.S. Treasurys this week also helped push the dollar lower against the yen, traders said.
The Australian dollar fell 0.7% to US$0.7596, while the New Zealand dollar dropped 1.7% to US$0.5949. 
