US dollar declines after weak homes sales

The dollar has weakened against the euro and several other major currencies today after an unexpectedly large drop in new home sales.

EUR/USD was up 0.22% at 1.3384 by mid-afternoon in New York and the dollar index, a gauge of the dollar’s strength against a basket of six other major currencies, declined 0.16%.

The dollar has benefitted this week from growing speculation that the Fed is ready to being tapering its stimulus at the next FOMC meeting, bolstered mid-week somewhat by the publication of the minutes from the last monetary policy meeting which revealed ‘almost all’ committee members were comfortable with the outline given by Ben Bernanke at his June pst-FOMC press conference in which he suggested tapering would begin later in the year, contingent on the economy matching the Fed’s outlook.

But the weakness of today’s home sales report muddies the water somewhat.

Although the strength of yesterday’s manufacturing data means the Fed is unlikely to consider the economy derailed from its forecasts yet, home sales dropping to the lowest level seen all year may give policy-makers pause for thought.

New home sales plummeted to an annualised, seasonally-adjusted rate of just 394,000 in July, well below the consensus estimate of 490,000 shown by a Reuters survey of economists. Worse yet, June’s rate was amended downward from 497,000 to 455,000.

Existing home sales, seen earlier in the week, continue to show strength, but the softness of the latest new home sales data does raise a question mark over the housing market recovery.

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