Dollar falls on surprise drop in US retail sales

New York, Aug 14 (Reuters) - The U.S. dollar dipped on Friday due to a surprising slump in July retail sales, which prompted the euro and British pound to hit multi-month peaks. Traders analyzed Federal Reserve policies while examining the data. Retail sales experienced a 0.6% decrease in July, contrasting with a 0.2% gain in June.

Economists surveyed by Reuters had anticipated a 0.1% increase. Juan Perez, director of trading at Monex USA in Washington, highlighted the evidence of a weakening economy. Simultaneously, softer-than-expected consumer and producer price inflation reports have reduced expectations of a Fed rate hike at the September meeting. The Fed's probability of raising interest rates in September dropped to 31%, while the chance of an increase by December rose to 69%.

Labor market concerns intensified as the July employment report revealed a job loss in the previous month. The dollar index, tracking the greenback against a basket of currencies, slid 0.25% to 99.67. The euro climbed 0.32% to $1.1564 and hit $1.1585, its highest level since June 17. The British pound advanced 0.33% to $1.353, its best since May 12.

Traders are also monitoring the U.S.-Iran conflict and efforts to reopen the Strait of Hormuz. Crude oil prices rose on Friday following renewed attacks on tankers and the ongoing tense exchange between the Trump administration and Iran's leadership. The Japanese yen strengthened 0.08% to 159.37 per dollar, on track for a weekly decline of about 1% as the influence of recent U.S. and Japanese interventions wanes.

This has left traders anticipating either a rate hike or additional intervention to halt the currency's decline. The Bank of Japan is expected to increase rates in September and may consider more aggressive hikes. Since exiting a large-scale, decade-long stimulus in 2024, the Bank of Japan has raised interest rates twice a year, including a 31-year high of 1% in June.

Recent interventions have not improved JPY sentiment; instead, bearishness has grown to four-year highs. Most surveyed fund managers believe a 2% terminal rate could stabilize the currency, requiring four more 25-basis-point hikes. The yen reached 40-year lows near 164 per dollar before July's intervention, with traders considering the 160 level as a potential trigger for further official actions.