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16.10.2014 - Weak data from the United States has led to a decline of the dollar

The euro strengthened yesterday amid falling US dollar due to weak data on retail sales in the United States which for the first time since the beginning of the year showed a decrease of 0.3%. It is worth recalling that the decline in retail sales in the beginning of the year was due to an abnormally cold winter. Investors were also disappointed with the data on the index of business activity in the manufacturing sector in New York in October to 6.2 compared with an expected 20.3. Today the course of trading will be affected by the labor market data in the United States (12:30 GMT) and the volume of industrial production in September (13:15 GMT). Despite this, investors will not rush to build up positions before publication of important data on the housing market on Friday. We maintain a medium-term negative outlook and recommend holding short positions on the euro.

The British pound yesterday showed a sharp increase after the publication of data on the labor market of the country, as well as due to the weakening dollar. The unemployment rate reached its lowest level since October 2008 and amounted 6.0%, which is 0.1% better than expected and 0.2% better than in July. At the same time, the number of unemployed decreased by 18.6 thousand, against an expected fall of 34.2 thousand. Wage growth remains weak and does not compensate inflation. Thus figure rose to 0.7%, which is 0.1% better than in the previous period. It is worth mentioning that the Bank of England announced that wage growth is one of the factors which will be watched before an increase in interest rates. We expect lower prices in the near future, but keep medium-term positive outlook.

The Japanese yen continues to strengthen amid growing demand the defensive assets from investors in connection with the fall of the stock markets. Also it is worth noting the weak data from the United States. Data on reduction of the producer price index by 0.1%, compared with an expected growth of 0.1% leads to a later increase in interest rates of the Fed. We recall that our forecast on reduction of the yen is based on expectations of further easing of Japanese monetary policy and its tightening in the United States. Despite the current strengthening of the Japanese yen, we expect a further weakening of the yen and maintain a medium-term negative outlook.

The Australian dollar rose against the weakening of the American currency, as well as in connection with the data on inflation in China, which is slowing down, which increases the chances of launching incentives by the Chinese government to stimulate the world's second largest economy. The price of the Australian dollar is still under the pressure of low iron ore prices and the slowdown in China. Our medium-term outlook remains negative.

The New Zealand dollar continued to rise and reached an important level of 0.80. The fall of the American currency and the increase in the index business confidence in the manufacturing sector of the country in September to 58.1, against the previous value of 57.0 supported investors. Statistics on the growth of new lending in China to 857 billion in September, against the expected 750 billion also improved investor sentiment. Despite the current growth, we maintain a medium-term negative outlook due to trade deficits in recent months and the policy of the Reserve Bank of New Zealand, aimed at devaluation of national currency.

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