Weak New Homes Sales Pushes the US Dollar Lower
By dailyFX
The U.S. Dollar continued to lose ground in the currency market as it fell against nearly all of the majors following data New Home sales which fell to its lowest in more that 12 years. The USD/CHF saw the biggest loss as the pair dropped from to 1.1292 from 1.1391 which represents a 2.2 percent drop on the day. The Euro gained ground against the US dollar for the sixth consecutive trading day while the GBP/USD currency pair hit a high of $2.00, but retraced back to trade within the $1.99 range. The only currency that did not appreciate against the US dollar was the New Zealand dollar which climbed into the 0.77 trading range.
The release of the New Home Sales data by the Commerce Department had a crushing effect as sales unexpectedly fell by 9 percent hitting a 12 year low, indicating that the worse of the credit and housing crisis is yet to be over. The release shed light on the continuing weakness of the housing market as inventory of new homes continue to accumulate with prices on a steady decline, causing growth prospects to be lowered for 2008. New Home Sales have decline by 25.4 percent for the year, and is expected to be the biggest decline since 1963. Amid the disappointing New Home Sales figures, the Chicago Purchasing Managers Index told a different story as it rose above expectation, showing significant accumulation of strength within the manufacturing sector. As a result, we anticipate the housing market to continually deteriorate until it hits rock bottom, and do not expect to see any signs of improvement for the housing industry until then.
The stock markets showed minor gains through a volatile trading session amid negative housing data, with 14 out of the 30 DJIA components declining, led by General Motors Corp losing 3 percent, followed by Citigroup which saw prices decline by 1.2 percent. The S&P500 followed the DJIA by welcoming a 1.35 point advance, bouncing back from the plunge in yesterday’s session which was ignited by the assassination of Pakistan Prime Minister Benazir Bhutto. The stock markets were resilient in today’s session as they struggled with the disappointing fact that the housing market has yet to bottom out, and were able of fight off a second day of decline.
US Treasuries enjoyed a second day of gains as new housing data sent yields plummeting and prices soaring. The past two days of negative data has sent risk adverse investors to seek shelter behind risk free assets as political unrest along with sluggish growth prospects deferred investors from jumping into riskier investments. The confusion and potential danger of the current economic and political situation has caused many to speculate that the Federal Reserve will lean towards another rate cut in January, further helping to increase the demand for US Treasuries. Due to the current economic situation along with the volatile securities market, many investors are moving their funds into the safe haven of US Treasuries, and we expect the trend to linger into the beginning of the 2008.
