The US dollar lost considerable ground against its foreign counterparts, as a surprisingly poor housing report dampened optimism for the worlds largest economy. Following the bearish economic data, markets immediately sparked a significant and extended dollar decline that has left it at or near weekly lows against major currencies. Though it subsequently regained some ground through the New York afternoon, the dollar remained 30 points worse against the Euro, 70 lower against the Pound, and 50 points off its open against the Japanese Yen.
The mornings US Commerce Department report showed that national housing starts were the lowest since 2000, as a quickly souring real estate market hurt demand for new homes. In fact, the printed result was worse than all 68 analyst forecasts reported by the Bloomberg News Service, emphasizing the truly bearish tone of the data; housing starts, permits, and construction all fell considerably from their recent trends. It is subsequently of little surprise that markets pounced on the opportunity to sell the Greenback, sending the dollar index 0.6 percent off of its daily highs through mid-day.
Given that economists have continued to cite the importance of housing market gains to national expansion, the mornings result bodes poorly for broader outlook on the US economy. It is regardless interesting to note that several key Fed officials have discounted the effects real estate on overall growth. In a speech yesterday, Chicago Fed President Michael Moskow said, The declines in residential investment could contribute to some volatile numbers for overall GDP growth, as we saw in the third quarter. But their direct impact on the economy is limited by the relative size of residential investment. Clearly then, the sharp and pronounced drop in new housing may have less of an impact on Fed policy than initial reactions would suggest.
Weakness in real estate was not enough to prevent further equity gains, with the Dow Jones Industrial Average 14.5 points higher to fresh all-time highs. Driving the broader market, national steel producers posted heady gains as speculation of potential takeover bids once again rattled domestic stocks. US Steel surged 8.4 percent to $69.99 as the conglomerate is rumored to be a buyout target from Russian competitors.
Fixed income markets moved in tandem with currencies, as yields on US Treasuries fell off of recent highs. With fears of a sharper-than-expected US slowdown dominating trader sentiment, the 10-Year Treasury note added a whopping 18/32 points to 100-08/32 on the day, with yields falling 7 basis points to 4.59 percent. Falling bond yields will do little to help the US dollar, which often strengthens as the rates of return on T-Notes gain. As such, it will be important to watch whether yields can continue previous strength, hitting monthly highs of 4.66 percent through yesterdays trading.
