FOREX-Dollar weakens after dour US economic data, yen continues winning streak

By Chibuike Oguh

NEW YORK, Feb 10 (Reuters) - The U.S. dollar weakened against major currencies on Tuesday following data indicating slower growth in the U.S. economy, while the yen strengthened and was poised for a second straight session of gains after Prime Minister Sanae Takaichi’s election victory.

U.S. Commerce Department data on Tuesday showed U.S. retail sales were unexpectedly unchanged in December, putting pressure on consumer spending, which constitutes two-thirds of the economy. Data-producing agencies are still catching up on releases after delays caused by last year's government shutdown.

The data helps to support the idea that investors are rotating away from dollar-denominated assets into safe havens and emerging markets, said Shaun Osborne, managing director and chief FX strategist at Scotiabank in Toronto.

"The broader environment in the U.S., particularly with the geopolitical concerns that emerged in the past couple of months, has prompted investors to think about where they're better off placing their money. It's not Sell America but Hedge America. So the dollar has softened in response to that and we've still got further to go," Osborne said.

The dollar index =USD, which measures the greenback against six other currencies, was down 0.15% at 96.805, after hitting a one-week low at 96.609. Against the Swiss franc CHF=EBS, the dollar erased earlier losses and was up 0.21% at 0.76735.

INVESTORS EYE MORE U.S. DATA

Investor attention this week will be focused on other upcoming U.S. data including monthly reports covering employment and consumer prices. White House economic adviser Kevin Hassett said on Monday that U.S. job gains could be lower in the coming months due to slower labor force growth and higher productivity. Investors are trying to assess whether weakening in the labor market has tapered off.

"The retail sales number was one of the top numbers this week that was supposed to be better for the dollar but that was a disappointment. So we're running into the payrolls number tomorrow and the likes of the ADP, which could be soft. And we had the comments from Hassett suggesting that we might be looking at weaker job numbers in the coming months," Osborne said.

"I think investors are rightly taking it somewhat as a warning that tomorrow's number may be somewhat disappointing," he added.

Commerce Secretary Howard Lutnick responded to a question about the dollar in a Senate hearing on Tuesday, saying the dollar is being manipulated higher by other countries to export to the U.S.

"The data has been weak in the last week and half or so and that sets up the employment data tomorrow as a big deal," said John Velis, head of Americas macro strategy at BNY Markets. "The consensus for non-farm payrolls is around 70,000 and I think there's a chance for it to be on the lower side of that because we've seen data from last week - jobless claims and JOLTS - also weakening. There's a chance that if we get a negative surprise on that, I think the dollar will weaken notably on that."

JAPANESE YEN CONTINUES WINNING STREAK

The Japanese currency was set to continue its winning streak after snapping a six‑day losing run on Monday following Takaichi's election triumph. The currency fell toward the 160 threshold against the greenback, triggering fears of intervention by Japanese authorities to support the yen.

Takaichi's policies, which include tax cuts and more fiscal spending, are expected to boost the economy and lift the stock market, potentially prompting the Bank of Japan to take a more hawkish stance, all factors that could support the yen.

The yen rose 1% to 154.285 against the dollar JPY=EBS after jumping 0.85% the day before.

"With Prime Minister Sanae Takaichi moving from a relatively fiscally conservative stance to one favouring carefully targeted stimulus, the balance of risks has tilted toward additional tightening from the Bank of Japan," said Harvey Bradley, co-head of global rates at Insight Investment, adding that a neutral rate around 1.5% looks reasonable.

Meanwhile, European Central Bank President Christine Lagarde played down concerns that euro-dollar would influence the ECB's policy path, though the currency dynamic remains a key focus for market participants.

The common currency EUR= dropped 0.12% to $1.19075 after a 0.85% jump on Monday.

The Swedish crown SEK= strengthened 0.16% versus the dollar to 8.8039.

The Chinese yuan CNH= strengthened 0.05% against the greenback to 6.912 per dollar, trading at its highest since May 2023. That brings its gains to more than 1% this year, with analysts expecting the currency to rise throughout the year.