House prices and the US Dollar – historical context

Any deterioration in the housing market immediately has markets jumping. A metaphor for this would be PTSD in the face of what happened nearly 10 years ago, when the US mortgage bubble burst and the rest of the world was caught up in the storm.

Just last month Reuters were reporting that US housing market data underscored the economy’s stamina. The gains from last month’s data release have since been reversed and then some.

Yesterday’s housing data showed the 3.3% improvement in sales were reversed by 3.7% and prices are now stale at 0% - the very verge of contraction.

The US Dollar had been gaining against the Pound yesterday morning, with Sterling weakness governing movement on the currency pair, but this caused a 0.5 cent reversal up close to 1.25 territory. Does this data question the ‘Trump rally’? Global markets are certainly nervous.

Janet Yellen speech and potential US Dollar impact

The head of the Federal Reserve Janet Yellen will be speaking today at 12pm, and will likely be dogged by and audience hoping for confirmation as to why the FED have downgraded their forecasts for this year down from four interest rate hikes down to three.

It’s interesting that despite a rate hike in the US this month the Pound has made gains against the Dollar. To me this is a reflection of how forward thinking this market has become with politics taking such an exaggerated influence on exchange rate movement. The here and now which had been anticipated for months no longer gives much credence to exchange rate movement.

Yellen, in my years at Foreign Currency Direct, has always taken a dovish stance and decried any opportunity for a bold decision. The one hike last year when four were initially announced last January is evidence enough. To me this housing data will be another opportunity to enhance her position to justify keeping rates as they are for a while.

As such, the euphoria around the US Dollar may wane, and whilst rates are still in the 1.20’s, US Dollar sellers may be wise to take advantage of rates all would have jumped at to buy Sterling at the beginning of last year.

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