Dollar rallies broadly after retail sales data

By Vivianne Rodrigues

NEW YORK (Reuters) - The U.S. 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, excluding the hard-pressed autos sector, increased 0.5 percent, more than double the increase that economists had forecast. That followed a 0.4 percent pickup in March, suggesting that the U.S. consumer remained resilient despite the housing market rout.

The reading bolstered the dollar as consumer spending accounts for about two-thirds of the U.S. economy.

"The U.S. consumer is out there and still spending," said Kurt Karl, a U.S. chief economist at Swiss Re in New York. "As for the Fed, given the recent data, it wouldn't be a bad thing to stop for a while at 2 percent."

The euro dropped earlier to a session low of $1.543. In late trading, it was down 0.4 percent at $1.5479. The New York Board of Trade's dollar index, which tracks the dollar's performance against a basket of currencies, rose 0.4 percent to 73.246 .DXY.

Short-term interest rate futures, which track market expectations for Fed policy, showed a 92 percent perceived chance that the central bank would leave benchmark lending rates unchanged next month.

The fed funds target rate has been lowered by 3.25 percentage points since mid-September 2007, undermining the dollar's appeal to investors seeking higher returns.

"Today we saw the strength of the consumer with retail sales being better than what the market expected, especially in household goods, which shows us consumers are still resilient" said Boris Schlossberg, senior currency strategist at DailyFX.com in New York.