Dollar Pares Gains on Inflation Doubts, China

By James Ramage 

        The dollar pared gains against the euro and the yen on Thursday as investors looked past solid numbers for U.S. retail sales and jobless claims and focused on China's monetary policy and falling inflation expectations.
        Investors remained uneasy about whether recent China's currency moves and plunging oil prices will weigh on the Federal Reserve's decision to raise U.S. short-term interest rates in September, blunting the dollar's momentum.
        The dollar rose 0.2% versus the common currency, as one euro bought $1.1139. The buck slid from a session high reached earlier but remained on course to end a six-day losing streak. The dollar climbed 0.2% against the yen to Yen124.40.
        Concerns about global inflation and China's slowing economy have risen, particularly after the People's Bank of China's recent devaluation of the yuan roiled markets and sparked fears of currency wars among regional trading partners.
        "Everyone's waiting to see how China develops," said Brad Bechtel, managing director in Jefferies FX Group. "We know the big central banks are focused on what's going on over there. It's going to be hard for investors or the central banks to move with that uncertainty hanging over the markets."
        In the U.S., economists have lowered inflation expectations on the consumer-price index to 1.1% by December, from 1.3% one month earlier, and revised oil-price forecasts by year-end for benchmark WTI at just under $51 a barrel from $58 a barrel.
        The uncertainty has nudged back expectations for the first Fed rate increase since 2006 toward the end of the year, and even into early 2016. Higher interest rates would draw yield-hungry investors to the dollar.
        Markets calmed Thursday following a two-day plunge in the yuan as the Chinese currency's decline slowed, and the PBOC commented that the currency will stabilize and rise eventually.
        U.S. economic data continue to improve modestly. U.S. retail sales for July signaled that American consumers picked up spending, helping to raise the outlook for growth from July through September. U.S. retail sales in July increased 0.6% from the prior month, the Commerce Department said, equaling economists' expectations. Sales numbers were flat in June and rose briskly in May.
        Many economists forecast U.S. consumer spending will accelerate over the remainder of 2015, of which retail sales represent an important component. Consumer spending, which has been rising slowly for much of the year, accounts for more than two-thirds of total economic output.
        In addition, U.S. initial jobless claims, a proxy for layoffs, increased by 5,000 to a seasonally adjusted 274,000, the Labor Department said. Claims came in just above economists' expectations, but held near multidecade lows and signaled an economy that is adding jobs.
        Write to James Ramage at James.Ramage@wsj.com
        (END) Dow Jones Newswires

        August 13, 2015 15:33 ET (19:33 GMT)