NEW YORK (Reuters) - The dollar fell on Friday against a basket of currencies as a sell-off on Wall Street and slumping commodity prices overshadowed solid data on U.S. retail sales data and consumer sentiment which may encourage the Federal Reserve to hike interest rates next week.
The greenback initially rose on a November rise in retail sales before turning negative on the view the modest growth in stores spending was not strong enough to support further monetary tightening beyond next week.
“At this point, the market is shifting its focus off next week’s Fed rate hike, which has largely been baked in, and on to the path of normalization in 2016,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The dollar index .DXY fell 0.4 percent at 97.560. On the week, it was down 0.8 percent as Wall Street had a dismal week.
Oil fell to near seven-year lows this week and China’s yuan fell another half percent against the dollar in offshore overnight trading after authorities set the mid-point for the currency’s tightly controlled official onshore value at its lowest in more than four years.
“So these external macro factors could limit the scope of Fed hikes next year and that is weighing on the dollar,” Esiner said.
The futures market suggested traders priced in a 79 percent chance of a rate increase on Wednesday the end of the Fed’s policy meeting, according to CME Group’s FedWatch program. They don’t expect another hike until the middle of 2016.
Those factors caused traders to exit long dollar positions, said Steve Englander, director and global head of G10 FX strategy at Citigroup, boosting European currencies.
The dollar fell as much as 0.7 percent versus both the Swiss franc and the euro. It last traded down 0.5 percent against the franc CHF= at 0.9823 francs per dollar. The euro EUR= was last up 0.45 percent versus the dollar at $1.0989.
“When you have a selloff in risk, Europe tends to appreciate,” Englander said. “I think that’s why we’re seeing euro strength and European currency strength. But everything correlated with risk is selling off badly.”
The risk selloff also pushed the dollar lower against the Japanese yen, which moved below 121 yen for the first time since early November.
The dollar was last down 0.45 percent versus the yen to 121.04 yen JPY=, bringing its weekly loss to 1.9 percent.
Reporting by Dion Rabouin; Additional reporting by Gertrude Chavez-Dreyfuss in New York and Patrick Graham in London; Editing by Chizu Nomiyama and David Gregorio