Dollar Turns Negative on Weak Housing Data
The dollar fell below breakeven against a basket of major currencies after data showed ongoing weakness in the housing sector but losses were capped by gains in U.S. treasury yields on speculation over the next Fed chair.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.05% to 93.31.
The dollar was on track to end to its longest daily winning streak in nearly three weeks on the back of weaker than expected housing data.
The Commerce Department said Tuesday U.S. homebuilding fell 4.7% to a seasonally adjusted annual rate of 1.127 million units in September, well below economists’ estimates of a 0.5% decline.
The report also highlighted a sharp 4.5% slump in building permits to a rate of 1.215 million units. That was below estimates of a fall to 1.245 million units.
A sharp rise in U.S. Treasury yields, however, limited downside momentum in the dollar as speculation continues to mount that the next Fed chair will adopt a more hawkish stance on monetary policy than current Fed chair Janet Yellen.
“Speculation over the identity of the next Fed chair is helping to turn the outlook for the dollar more positive again, with a relatively more hawkish (certainly more than Janet Yellen) John Taylor an increasing possibility. his is helping to drive 2-year Treasury yields ever higher and the dollar stronger.”
The dollar could come under additional pressure later in the session as investors await theFederal Reserve’s Beige Book, a report on economic and inflationary conditions across the twelve Federal Reserve districts.
Inflation has lagged the Federal Reserve’s target of 2% raising uncertainty over the pace of future interest rate increases.
The euro and pound were the main beneficiary of dollar weakness supported by investor expectations that both the European Central Bank and Bank of England will tighten monetary policy sooner-rather-than later.