Dollar claws gains after U.S. data; Greece in focus

NEW YORK (Reuters) – The dollar gained against the yen and pared losses against most other currencies Tuesday after a big jump in U.S. inflation data and a less-than-expected drop in U.S. retail sales.

The data showed the largest year-over-year rise in U.S. producer prices since 2008, which pushed up U.S. Treasury yields and bolstered the allure of the dollar.

The euro and other high-yielding currencies had been higher earlier in the day, boosted by improved risk appetite after data from China eased concerns about slowing global growth.

But those gains evaporated on the release of the U.S. data. Traders had already cautioned that the single currency looked a sell on rallies, owing to Greece’s debt crisis and uncertainty over how much the private sector will be involved in a new financial aid package for Athens.

“Good U.S. data was initially good for risk, but we are now looking at dollar gains against all currencies,” said Kathy Lien, director of research at GFT Forex in New York.

U.S. retail sales in May fell for the first time in 11 months, dragged down by a sharp drop in receipts from auto dealerships, though the decline was less than expected.

The dollar rose 0.4 percent to 80.54 yen after climbing to a session peak after the data of 80.63 yen, according to Reuters data. The session low posted at 80.07 yen.

 

The year-over-year U.S. producer price inflation figure was well above expectations, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. “The balance of data was decent, yields went up and the dollar followed against the yen.”

The high-yielding Aussie was up 0.4 percent at $1.0647 after a report showed Chinese inflation surged to its highest in 34 months. China also raised banks’ reserve requirements by 50 basis points , which capped some of those gains..

 

GREECE

The euro hit a session high of $1.44734 on the EBS trading platform before easing back to $1.4433, up 0.1 percent for the day. Traders said sovereign accounts were selling above $1.4450.

Technical traders said the break back above the 55-day moving average at $1.44057 was a positive sign, while the next resistance was at $1.4508, the 50-percent retracement of this month’s sell-off.

The euro managed to climb as euro zone finance ministers meet to discuss Tuesday how private Greek bondholders should be involved in a second financing package for debt-laden Greece ahead of a self-imposed June 20 deadline for a deal. No decisions are expected Tuesday.

European policymakers struggled to sort out their differences over Greece with the stand-off between German officials and the European Central Bank over the prospect of a ”voluntary” debt rollover threatening a resolution.

On Monday, Standard & Poor’s slashed Greece’s credit rating to CCC, making the country its lowest rated in the world.

“The euro remains a sell on rallies as there is still a very high risk of growth momentum slowing down. Also, problems in the periphery should not be underestimated as Germany will stick to its stance on Greece and there is a risk of technical default,” said Manuel Oliveri, currency analyst at UBS in Zurich.

Yields for Greek, Irish and Portuguese 10-year government bonds hit fresh euro lifetime highs Tuesday as uncertainty over Greece spooked investors. . (Reporting by Nick Olivari, additional reporting by Neal Armstrong in London; Editing by Padraic Cassidy)