Dollar Index Rises to New 4-Month High as the Euro Falters

Market Trends - 20/07/2016

The US dollar surpassed a four-month high against a basket of currencies on Tuesday following stronger than anticipated housing starts and building permits. According to the latest building permits report from the US Department of Commerce, the key indicator which provides valuable information about the state of housing sector rose by 1.5% in June in comparison to figures released in May. Building permits data measures the change in the number of new permits granted by the government and any increase in demand is generally considered a bullish reflection of broader US economic activity. Aside from permits, US housing starts soared 4.8% during June to hit a mark of 1.189 million units, surpassing expectations of 1.170 million new units breaking ground. However, despite the headline optimism, the annualized number for housing starts is slightly concerning after the measure fell by -0.20% year over year. This is an important development considering contraction in the construction industry is traditionally viewed as a leading indicator of economic activity.

Even though there are some concerns overshadowing the latest US housing data, by comparison, the future looks much bleaker for Europe after the most recently updated global forecasts were published. The International Monetary Fund released its latest revisions to growth expectations for the Euro Area in 2017, cutting projections to 1.4% GDP expansion from the previous estimate of 1.6%. This represents a considerable deceleration from the 1.7% growth reached last year, “mainly due to the negative impact of the UK referendum” according to the IMF. Christine Lagarde, the IMF managing director, has repeatedly warned that the economic risks of a “Brexit” decision were “firmly to the downside”. The European Central Bank will issue its regular policy decision tomorrow at the conclusion of the Governing Council meeting before going on an eight-week hiatus. While the ECB is not expected to make any adjustments to its current monetary policy strategy, a dovish undertone could be the theme of the meeting, undermining the Euro even further.


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