NEWS / Foreign Exchange

Daily FX Commentary

Housing data maintains pressure on Fed

The US currency was unable to sustain gains beyond 1.42 against the Euro on Wednesday with reports of sovereign bids for the Euro below the 1.42 level there was a retreat to 1.4260 ahead of the US housing data. The dollar secured some defensive support from a renewed decline on Wall Street, but trading conditions were choppy and the US currency drifted to the lower end of its trading range around 1.4265. There was little change in early Europe on Thursday, although the dollar generally was struggling with a weaker bias.

US existing home sales weakened by a further 8.0% in September to an annual rate of 5.04mn which was the lowest figure since the current data series was created in 1999. The data also recorded a drop in prices as higher-value sales were damaged while inventories rose again. The latest evidence suggests some recovery in mortgage conditions, especially at the higher value end of the market which may provide some relief from late 2007. The new home sales data will be monitored closely on Thursday and may prove more resilient.

The housing data overall will, however, increase pressure for the Federal Reserve to cut interest rates again next week and markets have now fully discounted a cut to 4.50%. Yield considerations will tend to keep the dollar under pressure in the short term, especially if there is speculation over a more aggressive 0.50% cut next week.