* Dollar firms against yen, reversing post-payrolls fall
* Euro prodded higher by ECB's Nowotny
By Daniel Bases
NEW YORK, Jan 14 Stronger-than-expected December
U.S. retail sales data and a record Japanese current account
deficit helped push the U.S. dollar higher against the yen on
Tuesday while mixed signals among European central bankers kept
the euro in check.
The greenback rebounded after two days of losses, backed by
a report showing U.S. consumers spent more than expected in
December which contrasted against last week's weak U.S. jobs
Apart from the jobs data, the prospects of the U.S. economy
having gained steam in the fourth quarter were bolstered by the
retail sales data and news of an increase in business
inventories in November.
Stronger economic performance bolsters the case for the U.S.
Federal Reserve to continue scaling back its extraordinary
efforts to boost the economy and let it run on its own steam.
Most banks see a strong case for the dollar to rise this
year, given the contrasting outlooks for monetary policy in the
United States compared with Europe and Japan, whose central
banks are still considering more moves to support growth.
That suggests that a sell-off on Wall Street and of the
dollar since weak employment data last Friday may just be a
corrective pause that clears the way for gains, though the jury
is still very much out.
The U.S. Commerce Department said on Tuesday retail sales
excluding automobiles, gasoline, building materials and food
services - or core retail sales - increased 0.7 percent last
month versus a consensus estimate for a 0.3 percent rise.
November data was however revised lower.
"We had stronger than expected for December and downward
revisions in October and November and so all-in-all I don't
think GDP expectations have shifted dramatically as a result.
Had we had the stronger numbers and not the downward revisions,
that would have been a more clear positive for the dollar," said
Brian Daingerfield, currency strategist at Royal Bank of
Scotland, in Stamford, Connecticut.
In Tokyo, the government reported a record current account
deficit in November as a bulging trade deficit weighed on the
country's balance of payments.
In mid-morning U.S. activity the dollar traded up 0.60
percent to 103.60 yen, recovering after a more than 1
percent drop on Monday that saw it hit a roughly one-month low
of 102.85 yen.
"On the surface, this data supports those anticipating yen
weakness, at least to the extent that large current account
deficits tend to put downward pressures on a country's currency
(a supply/demand argument, in text book terms). But in Japan's
case, a persistently wide current account deficit will be a drag
on GDP and in that sense, it may be an impediment to the success
of Abenomics," Robert Lynch, currency strategist at HSBC wrote
Broadly, however, the dollar was slightly weaker against a
basket of currencies made up of its largest trading partners.
The dollar index was off just 0.02 percent at 80.53.
In Europe, Austrian central bank governor Ewald Nowotny gave
an upbeat assessment of Europe's economic prospects,
underpinning the euro.
The dollar gained 0.58 percent to 103.57 yen,
recovering after a more than 1 percent drop on Monday that saw
it hit a roughly one-month low of 102.85 yen.
The euro touched a two-week high against the dollar in early
trade after Nowotny, a senior player at the European Central
Bank, said euro zone growth may surprise on the upside, although
strategists cautioned that ran contrary to the concern expressed
over the economy by the bank as a whole last week.
"After (ECB President) Mr Draghi's comments last week, Mr
Nowotny's comments represent conflicting signals and make one
cautious on buying the euro in response," said Valentin Marinov,
head of European G10 FX Strategy at Citibank in London.
"There may still be some room for the euro to be squeezed
higher but in the medium term we still see the risks to the
Still, euro zone November industrial production numbers also
struck a positive note and the euro traded up 0.1 percent on the
day at $1.3683.