2013.08.1202:09:56UTC+00Dollar Index bolsters for second day before retail sales

The Dollar Index zoomed higher for a second day before U.S. data forecast to display retail sales increased for a fourth consecutive month, spurring to the case for the Federal Reserve to trim down stimulus which tends to debase the currency.

The yen swayed between losses and gains as investors assumed how slower-than-estimated economic progress in Japan would shape Prime Minister Shinzo Abe’s decision on whether to raise the sales tax. The 17-nation euro rallied from the worst in six weeks versus the Japanese currency before reports which may display industrial production and gross domestic product in the currency bloc bounced back.

Retail Sales

Retail sales in the U.S. probably spiked 0.3 percent in July after a 0.4 percent increase in June, according to the median forecast of economists surveyed by Bloomberg News before Commerce Department figures tomorrow. The Fed is buying $85 billion of Treasuries and mortgage debt each month to put downward pressure on interest rates.

Tax Doubts

“Weaker-than-expected growth in Japan’s GDP may raise the risk of delaying or reducing the planned increase in the sales tax,” said Yunosuke Ikeda, the head of foreign-exchange strategy at Nomura Securities Co., Japan’s biggest brokerage. “That may be seen as a setback to Abe’s reforms and spur selling of Japanese stocks and dollar-yen by hedge funds overseas.”

Speculators reduced bearish bets on the yen. The difference in the amount of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 80,213 on Aug. 6, compared with shorts of 82,135 a week earlier, data from the Washington-based Commodity Futures Trading Commission showed.

Traders turned bullish on the euro for the first time in six weeks. Net longs were 6,061 contracts on Aug. 6, versus net shorts of 8,504 a week earlier.

Economists in a separate Bloomberg poll estimate a report tomorrow will show industrial output in the euro area grew 0.9 percent in June from the month before, when it fell 0.3 percent. The region’s GDP probably grew 0.2 percent in the second quarter from the previous three months, another survey showed before data due on Aug. 14. The European Central Bank left its benchmark interest rate unchanged this month at 0.5 percent.

“The euro-zone GDP has contracted six quarters in a row,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “If they can snap that losing streak, that would obviously raise confidence within the ECB and reduce any expectation that they might have to cut rates again as early as September. That adds to the positive euro story.”