February 13, 2014 / 8:25 PM / in 4 years

FOREX-Dollar hits 2-week low vs euro in broad sell-off

* Dollar hit as weak retail sales spur fears on economy

* Euro, yen, franc and sterling shine

* Aussie dollar slides after weak jobs numbers

By Michael Connor

NEW YORK, Feb 13 (Reuters) - The dollar fell on Thursday to a two-week low against the euro and slid against other major currencies as an unexpected slip in U.S. retail sales fed fears that U.S. economic growth could be slowing.

Following the release of the weaker-than-forecast retail sales, the euro rallied against the dollar, to $1.3692, its strongest level since Jan. 27, before trimming gains to trade 0.60 percent higher on the day, at $1.3673.

“The retail numbers touched off covering of long dollar positions,” said Greg Moore, senior currency strategist at RBC Capital Markets in Toronto, who added that investors increasingly see alternatives to the U.S. dollar. “It’s a safer world out there.”

U.S. retail sales declined 0.4 percent in January, suggesting slowing economic growth and marking a second down month for retail sales. Some analysts attributed the drops in part to notably severe U.S. winter weather.

The soft retail figures followed data last week showing U.S. job creation had slowed sharply in the last two months. [ID:nL2N0LC0ZF}.

The sales data also stung the dollar index, which measures the dollar against six major currencies and which was already down more than 0.4 percent. The index fell as low as 80.194 after the report, and traded off 0.43 percent at 80.333 in late New York activity.

The dollar fell 0.30 percent against the yen, at 102.23 yen . Earlier, it traded as low as 101.695 yen. Losses of 0.75 percent against the Swiss franc left the dollar at 0.8939 franc.

The British pound touched its highest level against the dollar in nearly three years, as the soft U.S. data paled in comparison to a sunny economic forecast from the Bank of England. In late New York trading, sterling was at $1.6648.

A strong dollar against its major currency peers was a central bet for many banks at the start of this year, convinced that a steady reduction in Federal Reserve bond-buying would drive up dollar interest rates and draw in capital.

The failure of 10-year Treasury yields to get closer to 3 percent, however, has left many traders disappointed and the major currency markets meandering.

“Today’s move looks mainly like a squeeze of some of those positions put on yesterday,” said Paul Robson, strategist with RBS in London.

One explanation for the generally flat performance is that a sell-off in emerging markets, the other side of a shift in global capital due to the Federal Reserve’s reining in of monetary stimulus, has benefited other currencies as much as the dollar.

“The dollar’s safe-haven status has been eroded, and as equities come off, the dollar index is also a bit lower,” said Peter Kinsella, strategist with Commerzbank in London.

Some of the best currency returns so far this year have little do with U.S. policies and have been in the Australian and Canadian dollars, the Turkish lira and the Norwegian krone. Those currencies have gained largely because of either central bank policy or domestic events, according to Camilla Sutton, foreign exchange strategist at Scotia Bank in Toronto.

“We expect that Q1 returns will continue to be driven by the individual domestic stories,” Sutton wrote in a commentary. “For central banks, the most important driver will be inflation data, and it is this that is likely to be the key input for markets.”

On Thursday, the Aussie, looking in better shape this month after a 10 percent slide since October, dove almost 1 percent after an unexpectedly weak domestic jobs report.

The Aussie recovered substantially to trade at US$0.90, or off 0.42 percent, in late New York trading.

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