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    US retail sales rise the most in a year; dollar jumps higher

    Retail sales in the United States grew at the fastest rate since March 2015 as consumer spending appeared to be rebounding in April following a slowdown in the first quarter. Monthly retail sales rose sharply by 1.3% in April versus estimates of a 0.8% increase and a rebound from the previous month’s 0.3% decline. On a 12-month basis, retail sales accelerated to 3.0% in April from 1.7% in March.

    Excluding volatile items such as motor vehicles and parts, retail sales were up 0.8% on the month, beating estimates of 0.5% and an improvement on the previous month’s upwardly revised 0.4% rate. The alternate ‘control’ measure of retail sales, which is a more accurate gauge of consumer spending as used in GDP calculations, also beat estimates. Control retail sales increased by 0.9% in April from the prior month, sharply above expectations of 0.3% and March’s 0.2% rate.

    The best performing segments during the month were automobile sales (3.5%), gasoline sales (2.2%) and online retail sales (2.1%). The worst performing category and the only one to post a month-on-month decline was building materials and supplies dealers (-1.0%).

    The dollar jumped after the data, climbing to a two-week high of 109.54 against the yen before easing to 109.12 in late European session. The euro also headed lower, plunging below 1.13 dollars, while the pound slipped to 1.4342 dollars.

    The strong start to the second quarter of the year suggests that the US economy won’t have any trouble rebounding from the weak first quarter performance. Consumer spending makes up about two-thirds of the US economy so a sustained improvement in consumer spending should ensure that economic growth picks up from the 0.5% annualized rate seen in the first quarter.

    It would also mean that the Fed would have less reason to be cautious in moving ahead with further rate increases. In the April FOMC statement, the Fed signalled that global developments no longer pose a significant risk to the US economy, putting the focus back on US domestic data. With some measures of inflation already moving towards the Fed’s 2% target and the jobless rate already close to what is considered as the natural rate of unemployment, the likelihood of a June rate hike may not be so improbable.

    With futures markets barely pricing in one quarter point increase in the fed funds rate this year, further positive surprises to US data could refuel the dollar rally that’s been on pause for over a year now.

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