Dollar tumbles against euro
The greenback slumps to a one-week low against euro as reports show economic growth resumed in France and Germany during the second quarter.
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NEW YORK (Reuters) -- The dollar hit a one-week low against the euro Thursday after the euro zone's two biggest economies posted surprise returns to growth in the second quarter, helping drag the greenback lower.
The European reports contrasted with the United States, where disappointing retail sales cast a shadow over an anticipated rebound in consumer spending in the third quarter. A separate report showing the number of U.S. workers rose unexpectedly last week further weighed on the dollar.
The U.S. data came a day after the Federal Reserve gave its clearest statement so far that it saw the U.S. recession nearing an end.
"For now, the trend whereby risk seeking is synonymous with dollar weakness has re-established itself as the prevailing theme," said Gareth Berry, currency strategist at UBS in London, in a research note to clients after the European growth data.
In early New York trade, the euro was up 0.7% on the day at $1.4301 , after going as high as 1.4321, its highest in a week, according to Reuters data. Against the yen, the euro gained 0.4% to 136.86 yen .
The dollar fell 0.3% versus the yen to 95.74, but its index fell 0.6% to 78.329, its lowest since last Friday.
Both the German and French economies expanded 0.3% in the April-to-June quarter, wrong-footing expectations for contractions. Other data showed the entire euro bloc posted a modest 0.1% contraction.
The euro climbed after the data, but analysts pointed out that markets were brushing off some of the less rosier GDP readings. Despite only a slight quarterly contraction, the euro zone economy shrank 4.6% from a year ago.
The U.S. Commerce Department said total retail sales edged down 0.1% in July after increasing a revised 0.8% in June. Sales in June were initially reported to have risen 0.6%.
Analysts polled by Reuters had forecast retail sales rising 0.7% in July, expecting a boost from the government's "cash for clunkers" program that gives consumers money to swap aging gas-guzzlers for new, more fuel efficient models.
"The decline in the headline number for retail sales despite much talk of the 'cash for clunkers' program came as a big disappointment," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "I'm not surprised to see the dollar giving up its earlier gains versus the yen as investors are flocking to the Japanese currency as a safe haven."
Initial claims for state unemployment insurance benefits climbed 4,000 to a seasonally adjusted 558,000 in the week ended Aug. 8 from 554,000 the prior week, the Labor Department said.
Higher-yielding currencies such as the Australian and New Zealand dollars gained around 1% each, extending gains made the previous day.
Sterling rose 0.7% to $1.6607, recovering from a two-week low touched on Wednesday, when the government reported the U.K. jobless rate hit a 3-year high and the Bank of England's inflation report suggested that markets were expecting rates to rise too early.
The Fed held its benchmark rate near zero on Wednesday and said it would likely stay there for an extended period to guide the way to recovery. It also said the economy was showing signs of leveling out, which boosted risk sentiment.
Still, a degree of caution remained over the Fed's move to extend the time frame of asset purchases as it indicated the economy was still vulnerable, analysts said.
"The problem with Fed statement is that the market can read into it what it wants, leaving both sides content ... hence, for now it is still unclear which way the USD will jump," said Stuart Bennett, senior FX strategist at Calyon in London. 
