the visible hand

it is the theory which decides what can be observed – einstein

Dollar falls vs. major rivals after U.S. housing data

Posted by ecoshift on September 5, 2007

July’s 12.2% drop in contract signings on existing homes appears to be giving today’s market the jitters, despite the Fed’s efforts last week to inject liquidity into tightening credit markets through the discount window. The yen is up, the dollar down and the housing market bottom appears to be resetting into the future.

There is an assumption that a decline in the value of the dollar will increase the competitiveness of US exports and lower the US trade deficit. Yet, a recent article from the CATO institute indicates that 55% of US imports are “industrial products and components, the kinds of purchases made not by consumers, but by producers”. While the article is emphasizing the strength of US manufacturing, this statistic begs the question: what impact will a declining dollar (increasing commodity, component and industrial product costs) have on the competitiveness of US export products. When coupled with an increase in the foreign contract labor costs embedded in rising US productivity and potential increases in the price of all the wonderfully cheap products we consume on a daily basis, one can only hope that China continues to support the dollar… or at least moves judiciously to alternative dollar denominated investment strategies…

Business and Financial News – New York Times
Dollar falls vs. major rivals after U.S. housing data
By Wayne Ma, MarketWatch
Sept 5, 2007

NEW YORK (MarketWatch) — The dollar fell early Wednesday against its major rivals after the July pending home-sales index marked its lowest level since September 2001, raising concerns about the health of the broader economy.

The dollar was down 1.1% against the Japanese currency at 115.06 yen. The euro, meanwhile, was up 0.33% at $1.3669, while the British pound was up 0.3% at $2.0215. See currency rates.

Contract signings on existing homes fell by 12.2% in July — the largest drop since the pending homes sales index started in 2001, the National Association of Realtors reported. A decrease in pending home sales was seen in all four major regions of the United States, the group added. See Economic Report.

“The numbers were much weaker than anyone anticipated,” said Ryan Sweet, an economist for Moody’s Economy.com. “It suggests that housing has not yet hit bottom. The subprime mortgage problems and recent global events weren’t captured by the data, so another month of weak sales is likely ahead of us.””

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