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Strong US house market lifts dollar

Tuesday, August 19 16:41:56

The U.S. dollar hit nine-month highs against the euro and rose against a basket of major currencies today after strong U.S. housing data bolstered expectations for an earlier-than-expected rate hike from the Federal Reserve.

U.S. housing starts surged 15.7 percent to a seasonally adjusted annual 1.09-million unit pace in July, snapping two straight months of declines, the Commerce Department said on Tuesday. Economists polled by Reuters had expected starts to rise to a 969,000-unit rate last month.

"The improvement in housing starts may reduce the concern about the risks to the economy from a stagnation in the housing market," said Brian Daingerfield, currency strategist at the Royal Bank of Scotland in Stamford, Connecticut.

He said continued improvement in housing data could boost the Fed's confidence in hiking interest rates next year. Investors are closely watching for signs of when the U.S. central bank will hike rates from rock-bottom lows, which traders say will boost the dollar by driving investment flows into the United States.

The Labor Department said Tuesday that its Consumer Price Index edged up 0.1 percent last month after increasing 0.3 percent in June. In the 12 months through July, the CPI increased 2.0 percent after advancing 2.1 percent in June. The figures were in line with economists' expectations, according to a Reuters poll.

Analysts said the data had little positive impact on the dollar since it met expectations and would not likely affect the Fed's outlook for raising rates. The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI.

"This isn't going to swing the Fed's opinion one way or the other," said Richard Cochinos, head of Americas G10 FX strategy at Citi in New York.

The euro, which hit a nine-month low against the dollar of $1.33165 in the wake of the U.S. housing starts and CPI data, was last down 0.36 percent against the dollar at $1.3314.

The dollar, which hit a two-week high against the Japanese yen of 102.80 yen earlier in the session, was last up 0.18 percent against the yen at 102.74 yen. The dollar was last up 0.28 percent against the Swiss franc to trade at 0.9088 franc.

The U.S. dollar index, which measures the dollar against a basket of six major currencies, was last up 0.33 percent at 81.848. (Reuters)

For more visit: www.businessworld.ie