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14 October 2015

American focus: the US dollar fell after weak retail sales data

The US dollar fell against major currencies after weak data on retail sales in September, which signaled the prospects of slowing US economic growth.

In addition, the index of producer prices of final demand (PPI) fell more than expected, indicating continued weakness in pricing pressure. Slowing economic growth and low inflation will exert additional pressure on the Fed, forcing to postpone raising interest rates, which, according to investor expectations, a negative impact on the US currency.

US consumers increased their spending in September, providing support to the economy, despite a slowdown in employment growth and uncertainty over the global outlook. This was reported in the Ministry of Commerce.

According to data seasonally adjusted sales in retail stores and restaurants rose in September by 0.1% after a zero change in August (revised from 0.2%). The last change was due to an increase in car sales by 1.8%. Meanwhile, retail sales excluding autos fell 0.3% vs. -0.1% in the previous month (revised from 0.3%). Experts had expected overall sales to grow by 0.2%, while sales excluding autos fell 0.1%. Excluding gasoline and food retailers rose 0.4% in September. Except of motor vehicles and gasoline, retail sales remained unchanged. We also learned that in annual terms, retail sales fell by 1.1% after falling 0.8% in August.

Recall Consumer spending accounts for about 70% of economic activity in the United States and are a key indicator of the health of the economy. Retail sales represent a large share of total consumer spending.

The Department of Commerce also reported that sales of cars and auto parts increased by 9.3% compared to September 2014. Gasoline prices have fallen to an average $ 2.46 per gallon, compared to $ 2.72 per gallon in August.

Producer prices in the US fell sharply in September, beating forecasts of experts, which was mainly due to the fall in fuel costs and a stronger dollar.

The Labor Department said that the Producer Price Index, which measures prices that companies receive for goods and services declined by 0.5% in September. With the exception of volatile prices for food and energy, the index fell by 0.3%. Economists had expected overall prices reduced by 0.2%, while the benchmark will increase by 0.1%.

In annual terms, producer prices decreased in September by 1.1%, while writing the 8th consecutive drop. Meanwhile, basic prices rose by 0.5%.

Recall index measures the prices from the perspective of the seller, but in general is in close cooperation with other inflation indicators. This year, these sensors have historically been weak due to low oil prices, a strong dollar and weak demand abroad.

The report also stated that in September, producer prices for goods decreased by 1.2%, showing the maximum decline since January. Energy prices decreased by 5.9%, accounting for the bulk of the decline. Meanwhile, food prices fell by 0.8% and prices of services dropped by 0.4%.

Fed officials are searching for signs of firming inflation, while they decide when to start raising interest rates for the first time in a decade. Officials said they want to see clear signs of inflation to the 2% target before the Fed increase. Recall, the price index for personal consumption expenditures - the Fed's preferred inflation gauge - rose in August by 0.3% per annum.

The pound rose against the dollar substantially, reaching a maximum value since September 22, that was caused by the publication of the controversial data on employment and wages in Britain. The Office for National Statistics reported that the unemployment rate in the UK unexpectedly fell in June-August, while reaching its lowest level since mid-2008, but the increase in average earnings slowed moderately. According to data, the unemployment rate dropped to 5.4 percent compared with 5.5 percent in the three months to July. The last reading was minimal in the second quarter of 2008, before the start of the financial crisis. Experts expect that the unemployment rate will remain unchanged. The number of employees increased by 140 000 people, while increasing the employment rate to 73.6 percent, the highest since the beginning of statistics in 1971, while the number of unemployed decreased 79,000, recording the biggest drop in three months through January. The total income of workers - including bonuses - increased by 3.0 percent compared with 2.9 percent in the three months to July. It predicted that the figure will rise to 3.1 percent. Excluding bonuses, average weekly earnings increased by 2.8 percent in the three months to August compared with 2.9 percent in the previous three-month period (July). Recall, an increase of 2.9 percent had the greatest in the last six years. The data also showed that the number of people claiming unemployment benefits rose in September by 4,600, to just over 796.000 people. It was the first time since mid-2012, when the number of calls increased for the second month in a row.

Franck has appreciated against the dollar, supported by data from Switzerland. A survey conducted by the ZEW Institute and Credit Suisse Group, showed that the index of Swiss economic expectations improved significantly in October, thus reaching its highest level since March 2014. According to the index of investor expectations rose this month to 18.3 points versus 9.7 points in September. It is worth emphasizing the expectations index shows a continuous rise after a sharp decline in February, which was caused by the decision of the SNB to abandon the peg the franc to the euro at the level of 1.2 euro, resulting in a sharp appreciation of the franc. Since then, the franc has fallen significantly and is now trading at 1.0900 per euro. However, at the end of its last meeting, held on 17 September the SNB said the franc is still considerably overvalued, despite some depreciation. The report also stated that only 13.2 per cent of respondents expect worsening economic situation in Switzerland, 55 percent do not foresee any significant changes and 31.5 percent predict improvement. In terms of economic expectations, 69% of respondents predict an increase of 0.5% -1% in Switzerland in 2015, and about half of the expected growth of 1% to 1.5% in 2016.

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