• US Dollar Down As New Home Sales Hit Seven Year Low
• Euro Supported By Sentiment Reports, Awaiting IFO
US Dollar – The US dollar was dealt an economic uppercut following the release of the new home sales report for the month of February in the New York morning. Countering existing homes data seen last week, the new home sales figure widely disappointed the market, solidifying the fact that home construction weakness is likely to loom over the economy. According to the Commerce Department, sales of newly constructed homes unexpectedly fell to the lowest in almost seven years as colder February temperatures dampened interest. Subsequently, purchases have dropped almost 4 percent to an annualized pace of 848,000 last month. The decline was more than expected with market consensus looking towards a 985,000 rate for the month. Combining this report along with other housing sector data, it seems that the recent report reflects a stabilization of sorts. Although new home sales were lower, existing home sales seem somewhat supported, albeit in the near term. However, it does purport a relatively negative undertone for the world's largest economy. The bearish sentiment is helping to suppress the dollar in the session as traders continue to hear the specter of "spillover effects" lingering on US economic growth. Incidentally, the report comes just days before Federal Reserve Chairman Ben Bernanke is expected to speak before the Joint Economic Committee on the outlook for the economy. Although nothing different is expected to emerge from last week's Federal Open Market Committee meeting, committee members will likely focus on rising concerns of the effects that the housing market may have on future near term growth. Notably, questions will be targeting potential weakness in consumer spending as lagging housing sector fragility. Should indications by the illustrious Bernanke paint a different picture, dollars may return to en vogue.
EURO – Aside from traders maintaining the Euro bid tone on US housing data, the market remained optimistic following Euro-centric releases. First and foremost, the French business confidence survey unexpectedly rose in the month of March. Rising to a one year high of 109, the survey was boosted by near term strength in domestic orders. The monthly survey combined with better than expected French production outlook and own company production outlook, helping the Euro to gain further ground against the US dollar. Although relatively small compared to other pertinent releases, the handful of reports are likely to boost speculation for a better than expected IFO survey scheduled for tomorrow. With both the current and future assessments likely to remain at par, there is ample evidence for a slightly better than expected German IFO reading. Notably, data points to strong factory orders on the annualized comparison as industrial production continues to churn ahead at a 1.9 percent pace. However, sentiment is also considering the hard truth that the Belgian business confidence survey surprisingly dropped in the month. With 95 percent of all trade done with in the EU, the survey has been noted to lead IFO results in the past, Euro bearish. Separately, European ministers pulled back on previous warnings regarding the economy and the likelihood of irrevocable damage as a result of further rate hikes. Countering previous concerns over the higher costs imposed by rising interest rates, policy makers are now noting robust growth in the region. The sentiment, coupled with a negligibly higher Euro, may help in supporting further rate hikes in the near term. The market continues to price in a 4 percent benchmark rate by October of this year.
British Pound – The pound sterling received a lift today, the first time in three days, as housing data continued to purport a supported economy. According to the property research group Hometrack, property values in the British economy advanced the most in almost four years. The results are widely in line with previous housing survey figures released by Nationwide and RICS, adding to already positive speculation bidding the currency spot higher. According to the group, the cost of a home in England advanced by 6.7 percent on the annualized comparison, boosted by higher wages and a relatively tight labor market. The month's results are surely to play into rising speculation that the Bank of England efforts may not be enough to head off inflation which touched just shy of 3 percent earlier this year. Plenty of evidence can be seen to back the notion as futures contracts continue to price in another 25 basis point rate hike by mid year, bolstering odds that the underlying currency will top the US dollar in months to come.
Japanese Yen – While USDJPY went relatively unchanged from Friday's New York close, the Japanese Yen withered in the crosses after the minutes of the Bank of Japan's February meeting reaffirmed market expectations that the central bank would leave rates at 0.50 percent for much of the year. In fact, Kazumasa Iwata, one of the voters within the monetary policy committee, voted against the February hike, noting that the outlook for prices remains uncertain and consumer spending and wage growth were sluggish. Economic data over the course of this week will do little to negate Mr. Iwata's commentary, with headline and core Tokyo CPI both forecasted to go unchanged on an annual basis when released Thursday night. It appears that the Yen's only hope is for risk aversion to grow once again and make carry trades unpopular as the currency's strength continues to be undermined by disappointing fundamentals.
Commodity Currencies – Despite mounting geopolitical tensions as Iran refused to release fifteen captured British servicemen, lessening risk aversion in the markets left the high-yielding Australian and New Zealand dollars to gather strength. In fact, Aussie managed to push just above .8100 to hit new ten year highs while Kiwi targeted one year highs near .7200. Even with oil hovering near $63/bbl on the news from Iran, the Canadian dollar did not fare as well as an empty economic calendar left the currency complacent. Loonie may have a chance to recover upon the release of industrial product prices, which are anticipated to rebound in February on the back of surging commodities prices. At the same time, however, GDP for the month of January is predicted to slow to 0.2 percent from 0.4 percent. While the weaker GDP release could put a drag on Loonie strength, a significant gain in industrial product prices will dominate as it may tilt the Bank of Canada's bias even further to the hawkish side.