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US Dollar Index Falls below 80.00

H.S. Borji
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US Dollar Index Falls below 80.00

The US dollar edged lower against a basket of currencies Monday, as mixed economic data reminded investors the Federal Reserve won’t rush to raise interest rates any time soon.

The US dollar index, a gauge of the greenback’s performance versus six commonly traded peers, declined 0.3 percent to 79.80. The index last week posted its biggest five-day decline in more than two months as disappointing GDP figures and an unexpected drop in durable goods orders kept demand for the greenback in check.

On Monday the Deutche Borse Group said business conditions in the Midwestern United States advanced at a slower rate than forecast in June. The Chicago business barometer, which tracks business conditions across Illinois, Indiana and Michigan, fell from 65.5 to 62.6 in June. Economists forecast a reading of 63.0.

A separate release from the Federal Reserve Bank of Dallas showed Texas factory activity advanced further in June, driven by higher production levels and a rise in new orders. The Dallas Fed manufacturing business index increased from 8 to 11.4 in June.

The markets also received news Monday that the US housing market was improving in May, according to the National Association of Realtors. Pending home sales – a forward looking indicator based on contract signings for US homes – soared 6.1 percent in May. The monthly advance was the biggest since April 2010.

Economic data over the past several weeks show the US economy has rebounded in the second quarter. However, mixed housing data and a fall in durable goods orders have raised concern second quarter growth wasn’t as strong as initially forecast.

The US economy contracted at an annual rate of 2.9 percent in the first quarter, the biggest three-month decline since the first quarter of 2009.

Initial estimates have pegged second quarter growth at between 3 percent and 4 percent annually.

The USDJPY declined further Monday, testing the initial support of 101.24. The pair declined 0.11 percent to 101.28 on improved Japanese manufacturing figures. Monday marked the fourth consecutive day of declines for the USD/JPY.

The EURUSD attempted a re-test of 1.37 amid steady Eurozone inflation data. The pair advanced 0.28 percent to 1.3687.

The European Commission reported today that Eurozone inflation remained steady at 0.5 percent in June, as expected. Last week the Federal Statistical Office said German inflation steadied at 1 percent annually in June.

The GBPUSD surged to a fresh six-year high following the release of US data, as UK rate hike expectations continued to support demand for the British pound. The GBPUSD advanced 0.4 percent to 1.7103.

In UK data, mortgage approvals declined from 62,806 to 61,707. Mortgage approvals have been declining since April, when stricter mortgage rules were implemented to protect against riskier lending.

The BOE last week announced plans to further tighten mortgage lending. In its semi-annual Financial Stability Report, the BOE introduced a 15 percent cap on mortgage loans of more than four-and-a-half times a borrower’s income. The new rules come into effect October 1.

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