Talking Points- Headline July CPI holds at or above +2.0% y/y for fourth consecutive month.
- Best Housing Starts since November 2013.
- EUR/USD sets new yearly low at $1.3318.
Prolonged low interest rates well into 2014 may be helping prospective housing market participants come back to the US market, data released today showed. Housing sector activity slumped in early-2014 as interest rates spiked at the turn of the year, and the slow recovery back to fall 2013 activity levels may have been held back by ‘refinancing burnout.’
However, with long-end US yields diving to their lowest levels in over a year, housing market participants are coming back into the market, seemingly unconcerned with the potential for higher rates in the immediate future. Both the Building Permits and Housing Starts figures were well-above expectations, pointing to the strongest housing market activity in eight months.
Here’s the data lifting the US Dollar to its highest aggregate level in five months:
- Building Permits (JUL): 1052K (+8.1%) vs 1000K exp (+2.8%), from 973K (-3.2%) (m/m).
- Housing Starts (JUL): 1093K (+15.7%) vs 965K exp (+8.1%), from 945K (-4.0%) (m/m).
- Consumer Price Index (JUL): +0.1% as expected, from +0.3% (m/m); +2.0% as expected, from +2.1% (y/y).
- CPI ex Food & Energy (JUL): +1.9% as expected unch (y/y).
US yields have had little impact on the US Dollar the past several weeks (current 20-day rolling correlation between DXY and US10YY is +0.352, current 20-day rolling correlation between DXY and US30YY is +0.270), as the US Dollar has traded to fresh monthly and quarterly highs while yields lay on the floor.
Whereas the US yield curve was continuing to flatten ahead of today’s housing and inflation data, most the curve reverted back to unchanged on the day in the ensuing minutes; at a minimum, not serving as an impediment to the greenback.
Charts Created using Marketscope – prepared by Christopher Vecchio
Following the data releases, EUR/USD traded down from $1.3355 to as low as $1.3318, a fresh yearly low. The Euro is facing its own myriad of problems, between geopolitical issues with Russia, a looming recession, and the specter of more easing from the ECB. Gains by the US Dollar were seen widely elsewhere, particularly against the European currencies in the wake of the July US inflation and housing data.
--- Written by Christopher Vecchio, Currency Strategist