U.S. retail sales boost expectations, but dollar stays near high

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U.S. retail sales boost expectations, but dollar stays near high

LONDON, Sept. 17 — Reuters - The dollar held near three week highs on Friday after improved retail sales numbers in the United States boosted bets on the strength of the U.S. economy and earlier monetary policy tightening.

By 0720 GMT the currency had pulled itself into positive territory but lost close to a three-week low U.S. retail sales unexpectedly increased in August, rising 0.7% from the previous month despite expectations of a 0.8% decline, while a business sentiment survey by the Philadelphia Fed also showed a big improvement.

The figures helped revive cautious views on the U.S. economy after a slow consumer inflation reading and cautious job growth data earlier this month, and curbed expectations for an early tapering of its asset purchases by the Federal Reserve

The more bullish mood faces another test later on Friday with the release of the University of Michigan's consumer sentiment index, which surprised many investors last month when it slid to a decade-low due to smaller income gains and higher inflation.

The dollar index stood at 92.799 slightly in the session but was near the three-week high of 92.965 on Thursday night.

Currency markets were generally quiet on Friday and traders were reluctant to hold new huge positions ahead of a clutch of important central bank meetings coming next week including from the Fed, the Bank of Japan and the Bank of England.

Despite the ongoing China Evergrande-Saga and supports from many that equities are due to correction, risk sentiment remains surprisingly supported. Expect another busy FX trading session before a quiet week of central bank meetings, ING analysts said.

The Swiss franc nursed its losses after hitting a five-month low against the dollar of 0.9280 francs.

The dollar strengthened to 109.84 yen, having gained 0.34% on Thursday to rally off the six week low of Wednesday of 109.11 yen.

The yen has so far only a limited reaction to the ruling Liberal Democratic Party's LDP leadership race which will formally kick off on Friday ahead of a Sept. 29 vote. The LDP's parliamentary dominance means the party's new leader will be prime minister.

The major macro players are not expecting big policy shifts. A lack of moves in the yen is a testament to that, said Hiromichi Shirakawa, vice chairman and chief economist of Credit Suisse in Japan.

The Chinese yuan rebounded slightly and was last up 0.1% after Thursday's 0.4% decline.

The US dollar was traded to 6.447 offshore at 6.447 to the dollar, pressured by growing worries about China's real estate sector as investors fear property giant Beijing Evergrande could default on its coupon payments next week.

Still, on a trade-weighted basis the YUan went near to its highest level in five years, both in the onshore and offshore markets.