NEW YORK, June 16 (Reuters) - The dollar advanced on Tuesday after a record increase in U.S. retail sales in May following two straight months of declines, reinforcing a growing belief that the worst may be over for the world’s largest economy.
The U.S. currency turned positive against the yen after the data, while the euro hit session lows versus the greenback.
The dollar further extended gains after Federal Reserve Chair Jerome Powell painted a bleak picture of the U.S. economy in the wake of the coronavirus pandemic. That bolstered the dollar’s safe-haven appeal.
In the first of two-day hearings, Powell said there is significant uncertainty about the timing and strength of the U.S. recovery.
“Powell is sounding quite negative here. I think he’s being realistic,” said Juan Perez, currency trader at Tempus Inc in Washington.
“The U.S. dollar is gaining a little bit here just because of this uncertainty that Powell mentioned. It seems like monetary officials are preparing for a much longer recession for the U.S. economy.”
His testimony came a day after the Fed said it would start buying corporate debt on Tuesday as part of an already announced stimulus scheme, and launched its Main Street Lending Program for businesses.
In midday trading, the dollar index was up 0.5% at 97.062 =USD, with the euro dropping 0.6% to $1.1255 EUR=EBS.
The greenback, meanwhile, was little changed against the yen at 107.34 yen EUR=EBS, paring early gains.
Tuesday’s data showed U.S. retail sales jumping 7.7% last month, the biggest rise since the government started tracking the series in 1992.
Data for April was revised to show a record 14.7% drop in sales instead of the previously reported 16.2%. Economists polled by Reuters had forecast retail sales would rise 8% in May.
The data followed a report early this month showing the U.S. economy created 2.5 million jobs in May.
“There are signs from the data here of better traction for the U.S. economy,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto. “Perhaps we can move way from the binary risk-off and risk-on move of the market and just focus on fundamentals.”
Earlier in the session, investor sentiment improved after news reports said the Trump administration is preparing up to $1 trillion in infrastructure spending focused on transportation projects as part of its push to spur the U.S. economy back to life.
Taken together with the Fed’s slew of stimulus programs, the news reinforced a belief authorities will do what it takes to get the U.S. economy back on track.