NEW YORK (MarketWatch) -- The dollar rose to a four-and-a-half year peak against the yen and an 11-week high against the euro Wednesday, after a government report showed U.S. retail sales rose much more than forecast last month.
The dollar rose for a sixth consecutive session against the euro after the Commerce Department said retail sales registered the largest gain in 16 months. The strong reading boosted expectations that the Federal Reserve will keep interest rates high.
"The May retail sales numbers are quite solid," said Brian Dolan, chief currency strategist at Forex.com. He added the caveat, however, that the details of the report are "not as stellar as the headlines suggest."
The dollar's now "testing key resistance levels at 122.50 in dollar/yen and 1.3264 in euro/dollar," he said.
In New York trading, the euro stood at $1.3296, compared with $1.3307 late Tuesday, after sliding to $1.3261, the lowest level since March 26. The dollar was quoted at 122.32 yen, compared with 121.75 yen, after rising to 122.48 yen, the highest level since December 2002.
The British pound stood at $1.9689, compared with $1.9749. The dollar changed hands at 1.2448 Swiss francs, compared with 1.2423 francs.
The euro traded at 162.60 yen, compared with 161.99 yen.
Gains in the dollar were limited as Treasury yields turned lower after news of a jump in May retail sales and higher-than-expected import prices failed to push yields above 5-year highs. The 10-year's yield fell to 5.23%, after earlier touching a new five-year high of 5.3%. The dollar has benefited from higher Treasury yields in recent sessions as higher interest rates increased the appeal of dollar-denominated assets.
And at 2 p.m. Eastern time, the Federal Reserve will release its latest Beige Book survey on regional economies.
Strong U.S. data
Retail sales jumped 1.4% in May, the largest seasonally adjusted gain in 16 months, the Commerce Department said Wednesday. Economists had been looking for a 0.7% increase.
The report, in the view of investors and economists, should provide reassurance that consumers are regaining their footing after a very weak start to the spring.
Separately, prices of goods imported into the U.S. rose 0.9% in May, the Labor Department said. Economists had expected a gain of 0.2%.
"Surprising headline strength in today's U.S. May retail sales report, alongside continued troublesome strength in import prices, should turn up the heat for the remarkably bearish bond market -- and for the Fed," said Mike Englund, chief economist at research firm Action Economics.
Not a manipulator
China escaped the censure of the U.S. government Wednesday when the U.S. Treasury Department announced that, once again, none of the United States' major trading partners is manipulating its currency exchange value in order to gain an unfair advantage in trade.
The semiannual currency report contained harsh words for how Chinese officials have managed their economy and their currency and warned of dire consequences unless China moved quickly to allow its currency to strengthen and eventually achieve far greater flexibility. But the report concluded that China did not meet the technical requirements for designation as a manipulator.
The results were not expected to surprise members of Congress who plan to unveil a China trade bill later this afternoon designed as a stick to prod China to strengthen its currency, possibly with duties on certain Chinese imports.
Four U.S. senators will unveil a new bill Wednesday that takes aim at "misaligned" currency policies that harm U.S. trade and economic interests. Details of the bill will be released at 1:30 p.m. Eastern.
Senators involved in the bill, including Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., have been vocal opponents of China's currency policy, which they say undervalues the yuan and hurts U.S. workers.
