The February US retail sales data was much stronger than expected, even when taking into account the downward revisions in January. A picture of a broadening of the recovery is emerging. Looking at the Jan-Fed period combined, the headline rate rose a combined 0.4% and the market had expected a 0.3% increase, but the real strength is excluding autos and gasoline. The market expected a 0.9% increase. Instead it rose 1.4%. Ten of the 13 major categories of good/services increased, led by electronics (3.7%) and appliances. The core–ex auto, gasoline and building materials, feeds into GDP estimate. It rose 0.9% and is up 4.5% at the three month annualized pace. This is off the 5.4% pace in Q4 09, but is well above the 1.4% pace of Q3.
Combined with yesterday’s news of a smaller US trade deficit and Canadian figures, including today’s Canadian employment (even discounting the Olympic effect), the strength of the North American economy is evident.
Corrective forces were cut short by the data as the dollar had slipped to the lower end of its recent ranges against the European currencies. The euro was turned back from almost $1.38 and sterling had neared the $1.5200 area. If these levels are not taken out today, it may leave the players looking to again probe their downside next week.
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Marc Chandler is the global head of Brown Brother Harriman’s top ranked Currency Strategy Team. For more of BBH’s currency views, please visit the BBH FX website here.
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