By Harry Robertson and Rae Wee

LONDON/SINGAPORE (Reuters) – The greenback slipped on Thursday after a raft of information confirmed the U.S. economic system is shedding momentum, whereas the yen rebounded as merchants continued to wager the Financial institution of Japan will shift away from ultra-loose financial coverage.

U.S. information launched on Wednesday confirmed retail gross sales fell by essentially the most in a 12 months in December and manufacturing output suffered its largest drop in almost two years, prompting a pointy drop in bond yields.

Analysts mentioned the autumn in yields, which makes dollar-denominated bonds much less engaging, was an element weighing on the buck.

“The developments make us extra assured that the Fed is getting near the top of their tightening cycle, and assist our bearish U.S. greenback outlook,” mentioned Lee Hardman, senior foreign money analyst at Japanese financial institution MUFG.

But Hardman mentioned the greenback shouldn’t fall too far, given its standing as a protected asset in instances of financial stress.

The euro was final up 0.2% towards the greenback at $1.082. It hit a nine-month excessive of $1.089 on Wednesday earlier than paring its beneficial properties.

European Central Financial institution President Christine Lagarde on Thursday mentioned inflation is much too excessive and that the ECB will preserve elevating rates of interest.

“We will keep the course till such a time when we’ve moved into restrictive territory for lengthy sufficient in order that we are able to return inflation to 2% in a well timed method,” she mentioned in a panel dialogue through the World Financial Discussion board in Davos, Switzerland.

In the meantime, the greenback fell towards the Japanese yen and was final 0.2% decrease at 128.69 yen. That went a small solution to undoing the day gone by’s rise, which got here after the BOJ’s choice to face pat on its ultra-loose financial coverage.

Defying market expectations, the BOJ stored its rate of interest targets and coverage of yield curve management intact, and as an alternative crafted a brand new weapon to forestall long-term charges from rising an excessive amount of in a present of resolve.

The choice despatched the greenback up some 2% towards the yen, though it later pared beneficial properties to complete roughly 0.6% greater.

“It is actually reflecting the truth that market individuals are nonetheless speculating (on) a shift within the Financial institution of Japan’s coverage,” Carol Kong, a foreign money strategist at Commonwealth Financial institution of Australia (OTC:), mentioned of the yen’s rise on Thursday.

“Whereas there’s nonetheless excessive expectations for a coverage shift … I believe that can preserve the yen fairly elevated within the close to time period.”

The , which measures the U.S. foreign money towards a basket of friends, was final down 0.1% to 102.23.

Sterling slipped 0.16% to $1.233, after falling from the earlier session’s one-month excessive of $1.244.

The Australian greenback slumped 0.88% to $0.688, additional pressured by a shock dip in Australian employment in December.

In the meantime, the New Zealand greenback misplaced 1.11% to face at $0.637.

New Zealand Prime Minister Jacinda Ardern on Thursday made a shock announcement that she would step down no later than early February and never search re-election.

Buyers had been ready for U.S. financial information, with weekly jobless claims and housing figures due at 1330 GMT.