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    Solid US retail sales fail to move the dollar

    Retail sales in the United States rose more than expected in May, easing fears that the surge seen in April would be a short-lived improvement. May retail sales were up 0.5% month-on-month according to the advance report, beating estimates of 0.3%. It follows a jump of 1.3% in the previous month, which broke a series of weak readings since the end of 2015. On a 12-month basis, sales were 2.5% higher than in May 2015.

    The biggest monthly gain came from gasoline stations (2.1%), mainly as a result of the recent increases in fuel prices. Online stores and sports, music and book stores also performed well, rising by 1.3% each. The worst performers were building material and supplies dealers (-1.8%) and miscellaneous store retailers (-1.2%).

    Motor vehicle sales failed to keep the pace of the previous month and decelerated from 3.1% to 0.5% in May. Excluding automobiles, retail sales were up 0.4% in May, in line with estimates but down from 0.8% in April. When excluding for both motor vehicle and gasoline stations, retail sales rose by 0.3%.

    The more closely watched measure, the ‘retail control’ group, which is used in GDP calculations and excludes building material, motor vehicles, gasoline stations and food services, also surprised on the upside. Retail sales according to the control method were up 0.4% in May, slightly stronger than expectations of 0.3% and follows an upwardly revised rate of 1.0% in the prior month.

    The dollar failed to get a significant lift from the relatively strong retail sales figures. The greenback was trading around the 106 level against the yen, having firmed from a low of 105.62 yen earlier in the day. But the euro slipped slightly from around 1.1240 dollars to below the 1.12 level in late European session. The pound meanwhile was seesawing around 1.4150 dollars before slipping below 1.41 dollars as mounting Brexit fears continued to weigh on market sentiment for yet another day.

    However, today’s data underlines the strengthening trend in US consumer spending in the second quarter after a muted first quarter. The figures alone won’t be a big enough reason for the Fed to raise rates in June but will likely play a significant role in convincing FOMC members that the US economy is on track for moderate growth, which would warrant further rate increases over the coming months. A stay vote in the UK’s EU referendum and a rebound in jobs growth in June may yet sway the Fed to raise rates as early as July.

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