Stronger Existing Home Sales Drives US Dollar Higher

The US dollar showed minor signs of strength before heading into 2008 as the currency appreciated against most of its counterparts, except for the USD/JPY pair, due to an unexpected increase in Existing Home sales. The Euro and Pound Sterling both depreciated against the US dollar as the EUR/USD pair reflected the biggest gain in December as it fell around $1.45, with the GBP/USD pair falling to the $1.98. The Canadian dollar was also a big loser as it fell 200 pips against the US dollar. Amid its recent gains, the USD has seen its biggest decline in four years as we head into the New Year, and wait for new data that will give us a better outlook on what to expect for 2008.

The National Association of Realtors released new data showing that Existing Home sales unexpectedly rose above expectations, lifting hopes that the housing crisis may be in its final stretch. Existing home sales rebounded from a record low in November, reflecting a housing market that is showing minor signs of improvement despite the record fall in New Home sales last week. As inventory of homes remains high with prices continually falling, many are speculating that homes sales should continue to accelerate as prices continue to fall, while others are stating that home prices are not falling fast enough to drive up sales as sellers are reluctant to cut their profits. The National Association of Purchasing Management also had an optimistic outlook as we head into 2008 as it showed business activity in the Milwaukee region has expanded more rapidly in December due to a rise in new orders. The last few indicators of 2007 helped to show that all is not lost for the US, and that the economy is slowly but surely improving as we start the New Year.
The stock markets continued its volatile trading session as the DJIA and the S&P500 both saw declines amid the release of optimistic data for the US. Technology giant IBM led the decline as shares fell 1.7 percent. The leading losers in the market include telecom titan AT&T, whose shares fell by 1.8%, and Exxon Mobile, whose shares fell by 1.3% marked by a decline in crude oil futures. The biggest gains in the market came from Delta Petroleum Corp. as its shares climbed 20%, due to a 35% stake in the company by the billionaire Kirk Kerkorian’s private investment firm Tracinda Corp. Merrill Lynch also enjoyed watching its shares gain 1.7% as the company looks to foreign investors in an effort to raise additional capital to cover its losses in the credit crisis.

US Treasuries continued to enjoy the volatile trading session of the securities market as treasury prices continued to rise as investors sought the safe haven of risk-free short term investments. The US Treasury reflected the increasing demand of US treasuries as they awarded $20B in 3-month bills at 3.31% and $19B in 6-month bills at 3.39%, and expects the demand to continue in 2008. As the economic outlook for 2008 remains to be sluggish, we will expect the Fed to cut its key rates in the January 30th meeting, helping to increase the attractiveness for US treasuries in the New Year.