(Recasts; adds inflation news, analyst quotes; updates prices;
changes dateline from LONDON to NEW YORK)
By Kate Duguid
NEW YORK, Feb 14 (Reuters) - The dollar dropped to session lows on
Thursday morning following a report that U.S. retail sales recorded
the biggest drop in more than nine years in December, suggesting a
sharp slowdown in economic activity at the end of 2018.
The Commerce Department said on Thursday that retail sales fell
1.2 percent, the largest decline since September 2009 when the economy
was emerging from recession. Data for November was revised slightly
down to show retail sales edging up 0.1 percent versus 0.2 percent as
The sharp drop suggested a moderation in the pace of consumer
spending, which accounts for more than two-thirds of the U.S. economy,
in the fourth quarter.
"The dollar had been looking good until retail sales came in
much weaker than expected. The data suggests there is less in the
economy than people had thought, and has pushed the dollar
lower," said Daniel Katzive, head of foreign exchange strategy
North America at BNP Paribas.
The dollar index, which measures the currency against a basket of
six rivals, was down 0.1 percent, last at 97.035
Thursday's data is supportive of the Federal Reserve's current
inclination towards patience in its rate-hiking cycle. After four
increases in 2018, market participants are anticipating the central
bank will hold off on raises for the next one or two quarters.
"The Fed is on hold for Q1 and by the time it needs to make a
decision on policy again, we'll have a lot more data and we'll have a
better sense if this is softness associated with equity market
concerns, or whether there was something more profound going on,"
The euro rose on the back of the dollar's move, up 0.29 percent,
last at $1.130 .
Earlier on Thursday, the single currency hit a three-month low
after economic data showed Germany's economy stalled in the fourth
quarter of 2018. Broadly, the euro zone economy slowed as expected
year-on-year in the last three months of 2018. The fall was
cushioned, however, by hopes of progress in China-U.S. trade talks,
which supported the currency.
Market analysts fear that U.S. President Donald Trump could turn
his attention to European imports after China, and potentially impose
tariffs on European automakers in the coming days.
The United States is the main export destination of European Union
cars, well ahead of China, and the impact is significant especially
for Germany, which has the biggest value-added in exports of cars to
the United States.
GRAPHIC-Citi Economic Surprise Index GRAPHIC-World FX rates in
(Reporting by Kate Duguid and Saikat Chatterjee Editing by Nick Zieminski)
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