Friday brought some positive news for the dollar at the time. Retail sales in September rose 1.6%. This growth has been the highest since the month of March 2015, which has contributed to the elimination of the effects of the hurricane and the increase in the demand for cars and building materials.
The increase in energy prices due to a decrease in gas output in oil refineries affected by the hurricanes in the southern states has led to a spike in consumer inflation since the beginning of the year. The growth of prices in September was 0.5%, which is higher than the 0.4% advance the previous month. Year-to-year inflation accelerated to 2.2%, but Core CPI has been stuck at the level of 1.7% for the fifth consecutive month, which, apparently, is the main reason that the investors are not in a hurry to buy a dollar.
The Advantage of the administration continues to prepare public opinion to large-scale tax reform. Speaking for the American workers, Asset re-expressed all of the 9 points of the reform plan, presented in September, whose main provisions, according to opinion polls, the support of the majority of the citizens of the country. On Friday, the Minister of Finance, Mnuchin, has made a speech which has promised to increase the salaries of employees as a result of reforms and a fair level of tax cuts for the rich and the poor, among other things. According to Mnuchin, the record of growth in the stock market reflects expectations about changes in fiscal policy. That is, investors are waiting for changes with a positive attitude.
The Fed, apparently, is determined to increase the rate during a meeting in December. As to what follows from the FOMC minutes published on Wednesday, three more sweet spirit of the members of the committee, Brainard, Evans, and Kashkari, are against the rate increase, given the current weakness in inflation may be deeper than it is thought because of the low expected inflation and the weakness of the labour market . However, they are in a clear minority. The majority of the members of the cabinet continue to believe in the Phillips curve, and expect to exceed the growth in average wages, especially in September, where hourly compensation increased much more than expected. In general, the prevalence is clearly behind the falcons, and the market estimates of the probability of a rate hike in December as very high.
In favour of a tighter monetary policy and a sharp increase in the index of consumer confidence from the University of Michigan for the month of October of the indicator has been revised to 101.1 p from the preliminary stage of 95.1 p. During this time, the revision of the experts do not expect to indicate a positive mood of consumers, or to add opportunities for the growth of inflation.
The forecast for the GDP for the 3rd quarter, as of October 13, has been improved to 2.7%. The GDPNow model of the Federal Reserve Bank of Atlanta also supports bullish sentiments in the dollar.
Tuesday, a report on industrial production will be published for the month of September. Thus, a complete picture of the production in the third quarter. The first two months were rather weak. The data for the month of September may a little improve the overall result, but the situation remains difficult due to the large gap between the PMI indexes of the ISM and Markit. However, expectations are generally upbeat PMI points to growth, which could lead to a better GDP result.
Thus, the dollar is quite contradictory to the image. Both the Fed and the Trumpet of the work of the Administration in the same vein, forming a positive context for the prospects of the u.s. economy and, consequently, the strengthening of the dollar. However, the market has reacted quite nervously throughout the past week, and instead of the expected growth, the dollar has declined primarily because of low inflationary expectations.
Nevertheless, we can assume that the dollar will resume its growth next week. The weakness of inflationary expectations will in the background, because in the current situation, they are a secondary factor. Mnuchin promised that the tax plan would be on the table of the Trump in December and this powerful engine of the anticipation of inflation will increase with time. In addition, the Fed’s tightening of monetary policy will be offset by the tax reform.