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Thursday May 26, 07:02
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U.S. economy expanded more than expected in 1st quarter
(by Elena Podshuvejt)
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The US economy probably added 3.6% on an annualized basis in the first quarter, shows the survey of economists by Bloomberg News, which is more than 3.1 percent rate the government publicized on April 28. In the fourth quarter the rate was at 3.8 percent. The government estimates will be released at 8:30 a.m. in Washington.
``The `soft patch’ was not as soft as first thought,’’ said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts.
Economists cite increase in retail sales, projected rise in consumer spending in the period, and most importantly, narrowing of a trade deficit as reasons for a rise in their forecasts.
The Paris-based OECD’s forecast released on Tuesday confirmed that the US Fed is on the right track saying that the US monetary authorities need to continue with rate hikes, but easing monetary policy is prescribed for the eurozone that needs to reform its economy to make it better suitable for coping with shocks from the outside such raid exchange rate fluctuations or sharp rise in oil prices.
The OECD upped its growth forecasts for the US to 3.6% in 2005 from 3.3% mentioned in the previous semi-annual report. For 2006 the US growth forecast is at 3.3%.
The OECD’s forecast has certain consequences for the subsequent moves in the interest rates and as a result will impact the value of the dollar. The fact cited by the OECD in relationship to the core inflation, namely, that higher energy costs and imports are seeping through into core inflation, puts pressure on the Fed to continue with rate increases in its next meeting.
Another piece of data that will be released soon and will impact the dollar value will be the Personal Income and Personal Spending indices that are expected to be equal to 0.6% and 0.8% in April, up from 0.5% and 0.6% in March respectively. Strength in consumer earnings and spending will add to the incentives for the Fed to raise interest rates in the next meeting.
All of the above increases likelihood of subsequent rise in the value of the US currency as the US seems to be outperforming its rivals in the industrialised world at the time.
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