The Dollar rallied broadly on Tuesday after a report on April Retail Sales beat forecasts and supported views that the Federal Reserve will probably stop cutting interest rates next month. Retail Sales, ex-autos, increased 0.5%, more than double the increase that economists had forecast. That followed a 0.4% pickup in March, suggesting that the US consumer remained resilient despite the housing market rout. The reading bolstered the Dollar as consumer spending accounts for about 2/3 of the US economy. Analysts said the Dollar had also been boosted by a government report showing a slight rise in US import prices in April, which pointed to growing inflationary pressures. The market was little moved by Fed Chairman Ben Bernanke's comments that the central bank's liquidity measures had helped relieve strain in financial markets, but that the recovery process remained incomplete.
EurUsd dropped yesterday to a session low of 1.5431 and trades last at 1.5471, down 0.39%. UsdJpy dollar jumped to a session high of 104.92 and traded last at 104.76 up 0.86%. GbpUsd dropped 0.43% to 1.9448. UsdChf rose 0.72% to 1.0524.
Short-term interest rate futures, which track market expectations for Fed policy, showed a 92% chance that the central bank would leave benchmark lending rates unchanged next month. The fed funds target rate has been lowered by 325bp since mid-September 2007, undermining the Dollar's appeal to investors seeking higher returns. San Francisco Federal Reserve Bank President Janet Yellen said on Tuesday the current level of US interest rates should boost the economy in the second half of the year.
Euro was under pressure by a rights issue from Credit Agricole after it reported write-downs related to the US sub-prime mortgage sector. This indicated the euro zone is not immune to the problems in the United States and analysts are convinced that growing signs of a slowdown in economic activity in the Euro area will force the European Central Bank to cut interest rates at some point this year.