USD hurt by housing data

The USD composite index, which measures the value of the USD relative to the world’s major currencies, finished 2005 up 13%, marking the best year for the dollar in almost a decade. The USD might have recorded its best year since 1984 if not for weak housing data, which was released this week.

The data, which indicated sales of new and existing homes both declined in November, could be a harbinger for a downturn in the housing market. Over the last few years, the US economy has remained strong partly due to low interest rates, enabling consumers to borrow against the rising value of their homes. As the Fed has raised interest rates, consumers have predictably borrowed (and spent) less, which could spell trouble for the US economy. The Fed will certainly take this into account when it decides whether to raise interest rates next month. Reuters reports:

“What the market seems to be focusing on are U.S. home sales, which were quite a lot weaker than what people were hoping for. This is definitely weighing on the dollar via what people think that might mean for interest rates.”

Read More: Dollar slips as markets weigh soft US housing data