Nov 27 2007
US Housing Data Might Weaken The USD More Today
U.S. stock prices declined yesterday as investors worried that rising mortgage defaults and credit market losses would have a drag on the economy. Analysts estimate that the biggest slump in real estate since 1991, turmoil in financial markets, and higher energy prices will probably slow the U.S. economy’s growth rate to 1.5% during the 4th quarter of this year.
There is still a lot of fear because of the fact that this credit contagion is continuing to widen out, further supporting speculations that more Federal Reserve interest rate cuts are imminent. Futures on the Chicago Board of Trade show traders began speculating that the Fed will lower its target rate on Dec. 11. Traders estimate an 80% chance that rates will be cut to 4.25% at that meeting.
Meanwhile, the USD remained relatively unchanged following an uneventful return from the US Thanksgiving holiday weekend. The lack of economic data gave little directional bias to start the week’s currency trading, but a busy US calendar certainly promises a pickup in volatility in the week ahead. Trading in coming days could well be driven by the housing data upon which the whole USD argument rests at the moment. If housing continues to deteriorate, it will put relentless pressure on the Fed to cut rates in December, as the EUR/USD is expected to hit the 1.500 barrier. As for today, traders are expecting the National Home Price Index to be released at 14:00 GMT. The forecast for the index is a slight decrease from -4.4% to -5.0%. Later today, the US Consumer Confidence data due to be released and is also expected to show relatively weak figures.
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