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US Negative US economic outlook
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Tuesday, 19 February 2008 |
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The dollar gained ground last week even with continuing negative US economic outlook, on the back of US retail sales which rose 0.3% in January, bolstered by sales of new cars and petrol. Data from the Commerce Department showed the sales rise, which had not been expected, followed a 0.4% decline in December. "The data is clearly a surprise to the upside," said Omer Eisner of Reusch International. "I don't think it changes the outlook for further rate cuts. But in the near term, it does ease some recession concerns."
On Thursday Chairman Ben
Bernanke delivered another pessimistic forecast, leaving little doubt that the Fed will continue to lower rates, most likely by another 50bp at the next meeting in March. The net result was a wave of dollar selling as interest rate differential dynamics came right back into play.
This week the calendar is relatively tame with only the CPI data providing any meaningful guidance to traders. The market is expecting a slightly hotter number of 4.2% vs. 4.1% but a strong possibility exists that the data may surprise to the upside given the escalating costs in energy and food. This will put the Fed into a bigger bind as they will have the unpleasant choice of either curtailing inflation or stimulating growth. At this point the US monetary policymakers have clearly decided that growth matters more, leading to further rate cuts and dollar declines in the near term.
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