Dollar falls, Swedish crown weakens in London

The dollar looked set for a second week of losses on Friday, after poor US economic data left investors with no reason to expect interest rates will rise anytime soon. In Europe, German inflation data are also expected to signal a prolonged period of easy monetary policy, although that prospect has done little to curb the euro's strength so far in 2014.

The Swedish crown fell almost half a percent after a poor batch of retail sales numbers heightened expectations the Riksbank will cut interest rates next week. The New Zealand dollar hovered at its highest in nearly three years. The dollar has defied a raft of forecasts it would soar this year. Instead, it is a grand total of 0.04 percent weaker since January.

It may yet happen, but that will require US economic data to improve substantially. Consumer spending data on Thursday fell short of expectations, close on the heels of this week's downward revision of first-quarter growth. "I have been sticking with the view that the dollar should sooner or later be led higher by US yields and I don't think I'm alone in that, but it just doesn't want to go this week," said a senior dealer with one London-based bank.

Against the yen, the dollar slipped about 0.3 percent to 101.38 yen. It had fallen as low as 101.315 yen, its lowest since May 21, as US yields touched the bottom of their recent range. Neil Mellor, a strategist with Bank of New York Mellon in London, pointed to sentiment and other, more current data that had been more positive before the GDP revision. "It tells you a lot about the market's inclination that people are focusing on backward- rather than forward-looking numbers," he said.

"The Federal Reserve will clearly use any sign of weakness as an excuse to maintain the status quo (on rates) and the market wants to use the dollar as a funding currency, hence favouring the yield plays like the kiwi, sterling and others." The dollar index edged down 0.05 percent to 80.175. Against the euro, it was almost unchanged at $1.3612. An unexpected monthly drop in Swedish retail sales encouraged expectations that Sweden's central bank will cut its main rate again next week. A quarter-point move would take it to 0.5 percent.

The euro gained as much as 0.5 percent before settling at around 9.1985 crowns. "Beyond the retail sales data, it seems to be nerves behind the move, with investors cautious of next week's Riksbank," said Josh O'Byrne, a strategist with Citi in London. "Expectations are that the Riksbank will cut rates next week, but the key will be whether it signals it is willing to do much more." In New Zealand, policymakers have been raising rates for months. The RBNZ's cash rate is now 3.25 percent, among the highest in the developed world, and the kiwi has become a beacon to yield-seeking investors in response, gaining almost 7 percent this year.

It traded at $0.8773 on Friday, having peaked at $0.8795, just half a cent off the 2011 high of $0.8842. That is the strongest the currency has been since it was floated in 1985. Sterling also stood within striking distance of a near six-year peak. It gained ground after the Bank of England announced steps on Thursday to cool Britain's housing market that left intact expectations of higher rates. The pound was unchanged, trading at $1.7027, off a peak of $1.7064 set on June 19.

Copyright Reuters, 2014