US Dollar and Euro at Record Levels, but Canadian Dollar Shows Early Signs of Weaknes

The US dollar continued to set record lows against the Euro, as disappointing US Consumer Confidence figures worsened outlook for the domestic economy. A simultaneous Existing Home Sales result likewise dimmed forecasts for economic growth, with markets increasing bets on further Federal Reserve interest rate cuts through year-end.

The euro surged to fresh record highs of $1.4153 in mere moments following the Consumer Confidence figures, but limited extension left it only marginally above yesterday?s peak. The Canadian dollar likewise saw a strong bid following morning data, but its inability to forge new highs against the greenback suggests further short term USDCAD retracement is likely. Mixed performance in the US Dow and S&P 500 index left the Japanese Yen bid, with the dollar shedding ¥0.40 to ¥114.45.
US Consumer Confidence fell to its lowest since November, 2005, as the domestic resident grew considerably less optimistic on current and future economic prospects. Indeed, the Present Situation sub-index fell strongly for the second consecutive month and Expectations hit its lowest in over a year. This translated into tepid plans for future expenditures on durable goods and housing. Only 2.7 percent of all respondents said that they planned to buy a home within the following six months?a full 0.9 percentage points off of August?s multi-month highs. The worsening sentiment can be attributed to highly-publicized housing and mortgage troubles, but a similar drop in Employment sentiment signals that the domestic consumer has seen material signs of slowing US economic growth.

A simultaneous Existing Home Sales report only further worsened sentiment for the greenback, as sales fell to 5-year lows and unsold inventories soared. The headline result was marginally better than consensus forecasts, but this was hardly cause for celebration as transactions fell a whopping 4.3 percent through August. This led to a jump in levels of unsold homes and suggests that prices may need to fall significantly before we see a major turn in the ongoing housing recession.
US equity markets fell on the housing data, but a later bounce saw the Dow Jones Industrial Average nearly flat on the close. The diversified S&P 500 index was not quite as fortunate, however, as the key market barometer shed 0.2 percent to 1,515. Yet a bid in key tech stocks left the NASDAQ Composite higher?0.4 percent up to 2,677.

US Treasury Yields were significantly lower in the moments following Existing Home Sales and Consumer Confidence releases. The 2-Year Note lost 6 basis points to breach the key 4.0 percent mark at 3.98 percent. Longer-dated debt was unmoved through end-of-day trade. The 10-year Note and 30-year Bond remained at 4.61 percent and 4.90 percent, respectively.

Written by David Rodriguez, Currency Analyst for