US Home Sales Show Cracks in Recovery

Data from the US housing market gave risky assets a bit of a kicking yesterday afternoon with the euro, pound and equity markets slumping. As England kicked off their match against Slovenia the market was notified that new home sales in the US had fallen by 33% in the past month owing to the termination of a government incentive scheme.

This comes the day after pending home sales in the US also fell by 2%, more than expected, and gave risky assets a slap as well.

Sterling improved in the morning session as the Bank of England minutes showed that there is a dissenter in their ranks. Andrew Sentance voted for an interest rate rise of 0.25% citing higher inflation levels and stronger economic growth. The lack of support from other members was telling however and sterling, while bid, didn’t turn into a rocket ship.

What may do that however would be an endorsement from another ratings agency. Fitch were the first in the post-budget atmosphere to call the new measures ‘a strong statement of intent’ and that ‘it materially strengthens confidence in AAA rating’ and now Moody’s have joined the party. They declared yesterday that the budget measures were ‘supportive’ of the UK’s AAA credit rating. The one we need to win over however is Standard & Poors as they are the one agency with a negative outlook on the UK i.e. chance of a downgrade

The dollar didn’t have it all its own way however as the decision from Bernanke and others at the Fed weighed on the greenback. The committee indicated that rates could stay at their record low into next year so as to support growth, something that they have been saying for a while. The tentative natures of the statement has been exacerbated by the sovereign problems in Europe and the fears that we are beginning another leg down in the global financial crisis. The market reappraised its pricing for a rate hike in December to 0% probability, a fall from 10% before the meeting.

The economic calendar is fairly quiet today although we do have tier 1 data from the US at 13.30 in the form of durable goods orders. A durable good is defined as something that is expected to last for more than 3 years (white goods, cars). A high figure denotes that consumers are spending money and GDP should be higher. It therefore follows that the higher the figure the better it is for the US dollar.

Latest Exchange Rates At Time Of Writing

Rates are dependent on amount transacted.