The USD ended the day lower, as fresh negative economic news came out of the US. Meanwhile, global stocks were marginally down as well. The dollar fell against the euro, apparently due largely to profit-taking after the Dollar had its biggest rise in three weeks yesterday. The US economic data that was released today reinforced the current view that U.S. interest rates will remain at record lows well into 2010. Thus investors started plowing cash back into gold, causing the metal to reach another record high of $1,152.75 per ounce today. Also hurting the dollar today were comments by St. Louis Fed President James Bullard, who said that officials will probably adjust asset-purchase programs before they resort to hiking rates. This offset the dollar-positive remarks which were made by Bernanke yesterday.
US stocks initially fell today due to worries stemming from US software makers and a worse-than-expected report on new home construction that dealt another blow to the economic recovery outlook. Housing starts dropped 10.6 percent to an annual rate of 529,000 units, the lowest since April. It was the biggest decline in 10 months. The markets expected starts to rise to 600,000 units. Construction of new single-family homes fell 6.8 percent last month to an annual rate of 476,000 units, the lowest since May. Starts for multifamily homes tumbled 34.6 percent to 53,000. New building permits, which give a sense of future construction activity, fell 4 percent in October to a 552,000. The inventory of homes under construction hit a record low 560,000 units, while the number of permits authorized but not yet started fell to an all-time low of 93,900 units.
European share prices fell for a second consecutive day due to the weak U.S. economic data and negative reports from US technology companies. Software maker Autodesk, Inc. forecast fourth-quarter earnings below expectations, and customer relationship software maker Salesforce.com, Inc. reported a slowdown in new business. Japanese share prices fell to six-week lows.
The most interesting phenomenon of late is the breakdown in the negative correlation between US stocks and the dollar. Previously, positive news on the economy has been good for equities but bad for the dollar, and vice versa. However, we saw negative economic news today along with falling equity prices, but the dollar suffered as well. The focus seemed to be back on the grim interest rate outlook in the US as opposed to risk appetite. The Eurodollar gained about 100 pips today before finding resistance at $1.4989.
Most analysts are saying that the US dollar's longer-term declining trend will remain intact, noting that the FED is nowhere near raising interest rates from current record lows. Analysts said slow healing in the housing market, relatively benign inflation and excess slack in the economy meant the Federal Reserve would be able to honor its commitment to keep interest rates near zero for an extended period.
The Sterling was one of the few majors to lose significant value versus the USD today. The GBPUSD slid 0.5 percent to $1.6725.
The minutes of the Bank of England's Nov. 4-5 meeting showed a three-way split, with seven of its nine members voting to expand the bank's quantitative easing program by 25 billion pounds to 200 billion. The biggest surprise was discussion of cutting the rate of pay on bank reserves. This could ease policy by encouraging banks to lend more.
Any hope for a BOE-related boost to sterling is gone, said Daragh Maher, deputy head of FX strategy at Calyon in London.