Dollar Falls Further on New Home Sales Data, Rebound Unlikely
The US dollar traded near record lows against the euro and other forex counterparts, as dismal New Home Sales data exacerbated an earlier-session dollar decline and left the trade-weighted dollar index at fresh 2-week depths. Forex speculators continued to sell the greenback through the London currency trading session, and markets show little willingness to force a dollar bounce ahead of a critical week of US economic developments. Indeed, we may see the dollar remain in a relatively narrow range against the euro and other currencies ahead of the highly-anticipated US Federal Reserve rate decision due Wednesday, while similarly critical Non Farm Payrolls data will be due at the end of the week.
New Home sales in the United States fell to their lowest levels in 12 years, with a dismal 4.7 percent drop in volume leaving sales at a paltry 604,000 annualized rate. The morning data proved far worse than consensus forecasts and instantly intensified gloom for the ongoing US housing recession. Indeed, futures traders subsequently increase the implied probability of a more aggressive Federal Reserve interest rate cut—sending the dollar lower in the process. Fed Funds Futures now price in an approximate 90 percent probability that the FOMC will cut rates by 50 basis points at their Wednesday meeting. Such poor rate forecasts only add to current dollar selling pressure, and the progressively lower-yielding currency may have great difficulty rallying against major forex counterparts.
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Written by David Rodríguez, Currency Analyst for DailyFX.com,
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