The US dollar steadily lost ground today against nearly all of the majors – with the exception of the Japanese yen – as the forex markets remain overwhelmingly bearish on the beleaguered currency. The release of the Richmond Fed manufacturing index did little to help the greenback, as the gauge of overall business activity for factories unexpectedly declined to a five month low of -5 from 14.
The drop was led by weakness in shipments and new orders, as domestic demand appears to be waning. Meanwhile, the inventories component fell back as well, suggesting that manufacturers don’t expect orders to rebound in the near-term. The release of the National Association of Realtor’s existing home sales index on Wednesday could be particularly perilous for the US dollar, as the figure is anticipated to have fallen back 4.5 percent to a nearly six-year low of 5.25M. While such a weak figure will not come as much of a shock to investors, the NAR release will serve as a broad barometer for the entire housing market, as existing homes make up approximately 87 percent of the sector. With sales plummeting, the numbers of homeowners that are forced to default have gradually increased. Furthermore, the American Bankruptcy Institute, a nonprofit research group, reported on Tuesday that consumer bankruptcy filings have increased almost 23 percent from a year earlier. Clearly, homeowners are becoming increasingly distressed when it comes to repaying their debts, suggesting that withering disposable income will leave consumption likely to take a hit next. While this is certainly bearish for the US dollar, US equities may take the news to heart as well as a reminder that the woes of the credit markets are not quite over yet, and as Federal Reserve Governor Randall Kroszner said recently, “The recovery may be a relatively gradual process and these (credit) markets may not look the same when they re-emerge.”