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Feb. 17, 2017, 4:00 p.m. EST

Dollar broadly higher, but cedes ground against yen

Pound drops against buck after U.K. retails sales miss forecasts

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By Anora Mahmudova and Barbara Kollmeyer, MarketWatch , Hiroyuki Kachi

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The dollar was mostly higher against major rival on Friday, with the dollar index recording a second straight weekly advance.

The dollar strengthened against the British pound in particular on Friday, after the sterling tumbled following an unexpected decline in retail sales.

The ICE U.S. Dollar Index /quotes/zigman/1652083/delayed DXY +0.02% , which gauges the buck against a basket of six rivals, rose 0.5% to 100.94. The WSJ Dollar Index /quotes/zigman/41508961/realtime XX:BUXX 0.00% , a measure of the dollar against 16 major currencies, rose 0.3% to 91.06.

In a surprise drop, U.K. retail sales fell 0.3% in January, missing forecasts for a gain. The pound /quotes/zigman/16008140/realtime/sampled GBPUSD 0.0000%  slid to $1.2421 late Friday in New York from $1.2494 late Thursday. The pound slid 0.5% against the dollar over the week.

The euro /quotes/zigman/15934059/realtime/sampled EURJPY 0.0000%  also weakened, falling to $1.0608 late Friday in New York from $1.0664 late Thursday. The euro fell 0.3% against the dollar for the week.

Some analysts suggested that a pullback in the dollar following a big run-up in the past two months following the election is intact. The dollar is off 1.3% so far this year but down 1.4% in February.

“In the short-term, there are many things at play that are affecting the dollar, including options expirations on Friday,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

“In the long-run, the fundamentals continue to support the dollar and nothing has changed in our view. The dollar may fluctuate driven by monetary policy, geopolitical events, current account deficit, but it is the fundamentals that ultimately dictate the levels,” Chandler said.

This week’s economic data underlined continued strength in the labor market, manufacturing and housing sectors. The Federal Reserve Chairwoman Janet Yellen, during her two-day congressional testimony reiterated that the increases in interest rates are warranted in the coming months if the economy continues to grow as expected by the central bank.

The Fed-funds futures market is pricing in a less than 20% chance of a rate increase at March meeting with another one sometime this summer. The Federal Reserve so-called dot plot chart suggests policy makers expect at least three rate hikes this year.

The Japanese yen /quotes/zigman/16008150/realtime/sampled USDJPY 0.0000%  strengthened against the dollar, with the dollar falling to ¥112.92 late Friday in New York, compared with ¥113.25 late Thursday in New York. Over the week, the yen gained 0.3% against the dollar.

“Softer yields and weaker equity markets are often associated with a stronger yen,” said Chandler.

The 10-year Treasury yield /quotes/zigman/15866666/realtime BX:TMUBMUSD10Y +1.67%  retreated to 2.42%, after hitting 2.51% earlier this week. Meanwhile, the S&P 500 /quotes/zigman/3870025/realtime SPX -0.85%  pulled away from record levels for a second sessions in a row.

Investors are looking ahead to a long holiday weekend in the U.S., with Presidents Day observed on Monday.

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Anora Mahmudova is a MarketWatch markets reporter based in New York. Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @bkollmeyer.

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