Forex - Dollar weighed on by soft US consumer confidence, housing data

Tue, Feb 26 2008, 16:35 GMT
http://www.afxnews.com

LONDON (Thomson Financial) - The dollar was lingering within a cent of its all time low against the euro as dismal US housing and consumer confidence figures confirmed market expectations that the Federal Reserve will continue to cut US interest rates.

The Conference Board reported its Consumer Confidence Index fell to 75.0 in February, from a downwardly revised 87.3 in January, much worse than analyst expectations for a more modest fall to 81.3 This was the lowest level since the invasion of Iraq in 2003, while the expectations element was the weakest its been since Jan 1991.

"Consumer spending looks set to grow barely 1 pct this year based on the sentiment indicators suggesting that the Fed will continue cutting rates aggressively," said James Knightley at ING.

The US economy's woes were highlighted further by the S&P/Case-Shiller house price index which showed US home prices fell by 4.6 pct year-on-year during 2007, the biggest fall since the index started in 1987.

This offset earlier data showing US producer prices surged during January, rising 1.0 pct month-on-month sending the annual rate up to 7.4 pct. While the figures indicate that US consumer inflation is set to pick up, analysts said the Fed's concerns are likely to remain focused on the prospect of a sharp slowdown in growth.

"This latest unfortunate news on inflation isn't likely to prevent the Fed from cutting interest rates further - what choice does it have when the real economy could plummet into recession?," said Paul Ashworth, US economist at Capital Economics.

This series of weak data meant the euro continued the sharp ascent against the dollar started this morning after the closely watched Ifo survey of German business sentiment came in above market expectations, further reinforcing expectations that the European Central Bank will not cut rates any time soon.

Ifo's headline business climate index rose to 104.1 in February from 103.4 the previous month. Analysts polled by Thomson Financial News expected the index to drop to 102.7.

"Todays IFO report combined with the latest weakness in US housing is likely to help euro rise past 1.49 usd and onto 1.4930," said Ashraf Laidi, currency strategist at CMC Markets.

The euro has climbed as high as 1.4890 usd this afternoon - its highest level since Feb 1.

Elsewhere, the pound remained firm as the monthly retail sales survey from the Confederation of British Industry pointed to slowing consumer demand at the same time as mounting price pressures.

Analysts said this combination is likely to keep the Bank of England's rate-setting Monetary Policy Committee on hold for the time being.

"We do expect the MPC to cut rates further over time, but continue to expect that easing will be gradual rather than rapid," said Michael Saunders, chief UK economist at Citigroup.

London 1610 GMT London 1316 GMT

US dollar

yen 107.66 down from 107.84

sfr 1.0848 down from 1.0864

Euro

usd 1.4882 up from 1.4875

stg 0.7542 up from 0.7536

yen 160.26 down from 160.43

sfr 1.6148 down from 1.6163

Sterling

usd 1.9723 down from 1.9736

yen 212.41 down from 212.86

sfr 2.1398 down from 2.1441

Australian dollar

usd 0.9288 up from 0.9270

stg 0.4707 up from 0.4694

yen 100.03 up from 99.97