The U.S. dollar fell overnight as successful bond auctions in Italy and Spain, along with strong economic data in the Euro-zone, boosted demand for higher-yielding assets and weakened the greenback. The dollar was also under pressure after the European Central Bank and the Bank of England each left their interest rates unchanged. This morning’s economic data showed that sales at U.S. retailers in December rose less than forecast, restrained by cheaper fuel prices and holiday discounting that helped hold down the value of goods sold. The 0.1% increase followed a 0.4% advance in November, Commerce Department figures showed today. Also, more Americans than forecast filed applications for unemployment benefits last week. Jobless claims climbed by 24K to 399K, Labor Department figures showed. Analysts pointed to hiring by package delivery companies and retailers during the holiday season may now be giving way to an increase in dismissals.
The Euro rose against the U.S. dollar as Spain and Italy sold more debt than expected at auction’s today, driving yields lower and boosting the common currency. Spain sold 9.98 billion euro of debt, nearly double the 5 billion euro target. The yield on the three-year note fell to 3.384%, down from 5.187% at the previous auction of similar-dated securities last month. At the same time, Italy auctioned 8.5 billion euros on one-year bills at 2.735%, versus 5.952% at a prior sale. The successful debt sales boosted the euro as some market participants became more optimistic that the sovereign debt crisis is easing. The euro also gained after a government report showed industrial production in the region declined by less than economists forecast. Output fell 0.1% in November from the previous month, when it dropped a revised 0.3%, the European Union’s statistics office said. Economists forecast a decline of 0.3%. Early this morning, the European Central Bank left their interest rates at 1.0%, in line with the median forecast in a Bloomberg survey. The central bank cut interest rates by 25 basis points at each of its last two meetings to boost the economy as the debt crisis threatens to send the region into another recession.
The British pound weakened to 3-month lows against the dollar as speculation the BOE would increase quantitative easing in the coming months to incite growth gained steam. The BOE kept interest rates and the asset purchase target unchanged at 0.50% and 275 billion pounds, respectively at the conclusion of today’s meeting. Also, manufacturing and industrial production numbers registered worse than expected. U.K. factory output shrank 0.2% in November from the previous month, when it fell a revised 0.9%, the Office for Nationals Statistics said.
