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Dollar and housing prices big drop { September 2006 } Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=20601103&sid=a4JEYmwdsD4M&refer=ushttp://www.bloomberg.com/apps/news?pid=20601103&sid=a4JEYmwdsD4M&refer=us
Dollar Declines as New Home Prices Fall the Most Since 1970
By Daniel Kruger and Min Zeng
Oct. 26 (Bloomberg) -- The dollar fell against the euro for a third consecutive day, its longest losing streak in more than a month, and weakened versus the yen after a report showed the U.S. median price for new homes declined the most since 1970.
The U.S. currency also weakened against the South African rand, South Korean won and Swiss franc as further evidence of a cooling housing market supported the Federal Reserve's decision yesterday to keep borrowing costs unchanged.
``The numbers suggest the market is not deteriorating rapidly, but it's not improving,'' said Brian Dolan, research director at Forex.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, which has about $250 million worth of funds under management. ``It means there's very little impetus for the dollar to recover.''
The dollar dropped to $1.2663 per euro at 11:10 a.m. in New York, and touched $1.2677, its weakest since $1.2715 on Oct. 6. The U.S. currency closed at $1.2601 yesterday. The dollar traded at 118.68 yen from 119.13.
The median price of a new home fell 9.7 percent to $217,100 in September from $240,400 a year earlier, the report showed. It was the biggest decrease since an 11.2 percent year-over-year drop in December 1970, the Commerce Department said. The median price was the lowest since $211,600 in September 2004.
New-home purchases increased 5.3 percent to an annual pace of 1.075 million last month from a 1.021 million rate in August.
Discounts and Incentives
Housing sales rose from discounts and incentives, which reduces future demand and will ``keep the weakness'' for the dollar, Dolan said. ``We need to see the yen below 118.50 to get the downside moving.''
An industry report yesterday showed sales of existing homes declined 1.9 percent in September to an annual rate of 6.18 million, the lowest since January 2004.
Orders for durable goods in the U.S. rose 7.8 percent last month, the most in six years, after a revised 0.1 percent drop in August, the government said. The median forecast in a Bloomberg survey was for an increase of 2 percent. Excluding transportation equipment, orders rose 0.1 percent after a revised 1.5 percent drop. Forecasters had predicted a 1 percent increase.
The euro gained after European Central Bank President Jean- Claude Trichet said inflation risks ``will remain elevated into 2007,'' reinforcing growing expectations that the bank will lift borrowing costs into next year. A report earlier today showed German consumer confidence increased to the highest level in five years this month.
The Fed kept its main interest rate at a 5 1/2-year-high of 5.25 percent for a third consecutive meeting yesterday. The central bank paused after a two-year series of rate increases in August. The Fed said ``inflation pressures seem likely to moderate over time'' in its statement.
`Paper Wealth'
``This will keep the Fed worried about the economic growth going into the fourth quarter,'' said Kathy Lien, chief currency strategist at Forex Capital Markets LLC in New York. ``U.S. consumers living freely on paper wealth of their homes will have less to spend for the Christmas season. This is a bearish picture for the dollar.''
Traders had placed pre-set orders to sell dollars at $1.2660 per euro, which ``acted like a magnet,'' as the U.S. currency fell through that level, said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. He said there are no other important levels until the dollar breaks through $1.28 per euro, the weaker end of its present range.
Traders trimmed bets in the interest-rate futures market that the Fed will raise interest rates in January. Prices now indicate traders place a 4 percent probability that the Fed will boost rates at the Jan. 30-31 meeting to 5.5 percent, down from 16 percent before the Fed's announcement yesterday.
Initial jobless claims increased by 8,000 to 308,000 in the week ended Oct. 21, the Labor Department said in Washington. The four-week moving average, a less volatile measure, fell to 305,250, the lowest in eight months, from 308,000.
Last Updated: October 26, 2006 11:12 EDT
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