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American Economy Not as Strong as it Seemed

Yet another week the US dollar has finished as a market outsider. At last week’s close, the euro had strengthened by 2% and pound sterling by 1.8% over last week’s 5 trading days. Weak American statistics played against the dollar.

If only a couple of weeks ago American economic data was coming out as neutral for the most part, but now it’s really down and out. The report on April retail sales didn’t impress the market. The value didn’t move, even though it was forecasted to increase by 0.2%. The amount of retail sales even taking into account seasonality stood at $463.8 billion. This did leave room for a correction to March data which was reassessed upwards. However, it’s quite obvious that American consumers are staying cautious with their spending.

The April US producer price index fell by 0.4% against a growth of 0.2% the previous month. The base index, which doesn’t take into account a set of volatile goods, fell by 0.2%.

US manufacturing production also fell last month. The value decreased by 0.3% MOM against its expected 0.1% rise. This has been negative for 5 months.

The conclusions which can be made on the basis of data released this month don’t give anything to cheer about. It looks like expectations for a renewal of US economic growth after Q1’s fall have not come to fruition. Consequently, it’s not worth considering a raise in interest rates this summer.

UK statistics were much more positive. Manufacturing production in March sharply increased, up 0.5% against February’s 0.1% increase. This is the biggest growth since September last year and this has nudged the UK economy’s growth up in the second quarter. In the January-March period, Manufacturing production in the UK increased by 0.1%, thereby increasing growth in comparison to that of the final quarter of last year.

However, it’s not all so peachy in Blighty. Last week the bank of England announced a slight worsening of forecasts on key macroeconomic indicators owing to weak inflation. An increment in 2015 GDP is now expected at 2.5% as opposed to the earlier forecasted 2.9%. First quarter growth for this year could go up to 0.5% against the stated 0.3%. With inflation it’s even more difficult: the regulator doesn’t exclude a weakening in the value over the next few weeks and months. The CPI for this year could equal 0.6%; this expected value was adjusted with a slight increase.

Amongst significant world news it’s worth mentioning that Greece repaid its debt to the IMF in line with the schedule. Worries about Greece going bankrupt have been put to the back of people’s minds. The Russian central bank has decided that it will purchase $100-200 million from the market every day.

The euro/dollar in May managed to update its February maximums and touch 1.1466. In the meanwhile, American statistics are putting pressure on the dollar. As soon as the American economy’s situation stabilizes, euro growth will come to an end and the European currency will become weak again.

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