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Home » Online Forex Trading Blog » Weak Housing Data Sends Dollar Reeling

Weak Housing Data Sends Dollar Reeling

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A dollar already wavering under the lack of definition of the stimulus program by the Federal Reserve took another hit on Friday with disappointing housing data. Existing home sales plunged 13.4 percent in July as June and May sales data was also pared significantly. The Commerce Department’s monthly existing home sales report indicated a deeper than expected schism in the important housing sector and may point to a disappointing third quarter growth rate.

The slumping sales are attributed to rising interest rates and other factors. Surprisingly, sales in the Northeast were the only bright spot in a bleak national report. The higher interest rates climb, the bigger the toll on existing and new construction home sales. Analysts speculated that the upwards spike in June and May was the result of fear over rising rates.

Upon release of the Commerce Department report, yields on government debt lowered and the dollar weakened. Relative improvement in housing was one of the factors considered by the Fed in determining when and to what extent tapering will begin. The data suggests the Federal Reserve will not begin tapering in September, which was the expected date anticipated by analysts.

Mortgage rates have increased sharply since May. One of the benefits of the bond buying program has been the lowering of interest rates. The new data points out the flimsy nature of the recovery as well as the need for a policy statement by the Federal Reserve.

In July, the median sales price of an existing home in the US was $257,200, a healthy increase from July 2012 when the median selling price was $237,400. The number of homes sold in June marked a three-year high. In June, inventory would have been sold out within 4.3 months. After the disappointing sales in July, existing inventory would take 5.2 months to clear.

Euro Continues Rise

The ECB announced that rates would not change. Stronger-than- expected-growth in Germany has bolstered the euro and increased Chancellor Angela Merkel’s chance for re-election. Most of the growth in Germany was attributed to strong national spending.

The euro rose to $1.34. The dollar came back later in the day, settling at $1.33. Earlier in the week, the euro reached a six-month high at $1.3453. More troublesome were indications that investors were selling dollars to acquire the Swiss franc and the Australian dollar. Recent economic data from the euro zone is favorable as the region has climbed out of recession despite the weakness of the southern tier.

The dollar fell 0.2 percent against a basket of six major currencies upon the release of the housing data.

Against the yen, the USD retreated to 98.59 after reaching a three-week high at 99.15. The dollar has gained 13.7 percent against the yen in 2013. The difference between the 2-year treasury and the 2-year Japanese government bond still decidedly favors US investment. Indications are that Japanese investors are trending to US Treasuries.

Analysts have been speculating about the amount of the tapering when the Fed does initiate the slowing of the bind purchase program. The consensus is that the initial tapering level will be about $10 billion per month less than the current level. This does not appear to be a reduction that should be holding global markets at bay.

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About the Author -

Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses. Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.

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