Barclays: The US dollar heads for greener pastures

This came despite a decline in gasoline sales (-4.7%) and partly reflected an upside surprise in vehicle sales, which were up 1.0%.

The outturn had provided the US dollar with renewed impetus and reaffirmed the base case with many analysts that 2013 will see a renewal of US dollar strength.

"USD strength has been a consistent theme for FX markets since the end of last week. Stronger data in the US, combined with media reports that discussions of tapering asset purchases are alive and well, have led to a backup in US nominal yields and a stronger USD. US retail sales started Q2 on a strong note, alleviating some concerns from the market and the Fed that tax increases may weigh on consumption," says Peter Newland at Barclays.

Barclays' Q2 tracking estimate starts at 1.7%, up from our forecast of 1.5%.

The US’s economic outperformance relative to the rest of the world and shifting market expectations for quantitative easing will provide broad support to the USD, in Newland's view.

With regards to the retail data; "we had expected a decline, given the drop in unit sales during the month. The gain in nominal vehicle sales hints at some offsetting increase in prices, although it is unit sales that more closely track the input to GDP," says Newland.

Excluding the volatile components, core retail sales were up 0.5%, also well above Barclays forecast (0.1%) and the consensus (0.3%).

This reflected strength in clothing (1.2%), electronics (0.8%), and department store sales (0.3%).

It remains to be seen how much of the April increase will break down into real activity as opposed to shifts in prices, but it certainly suggests that, despite some softening, households have persisted with a solid pace of spending despite the tax increases faced at the start of the year.

Indeed, core sales growth in February and March were revised higher, both by two-tenths, the former to 0.5%, the latter to 0.1%. This lifted our Q1 GDP tracking estimate to 2.9% q/q (saar) from 2.7%. Our Q2 tracking estimate starts at 1.7%.