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US Dollar Nears Record Lows As Durable Goods Orders Plummet

Thursday, 25 October 2007 22:25:53 GMT  |  Terri Belkas, Currency Analyst

The US dollar barely missed hitting record lows against the Euro today and traded down across the majors as Durable Goods Orders were released at a much weaker-than-expected -1.7 percent. In fact, estimates had been for a 1.5 percent rise on the back of transportation gains as Boeing reported stronger orders during September.

Looking at the less volatile component that excludes transportation was a bit more optimistic, as orders for durable goods rose a mild 0.3 percent while nondefense capital good excluding aircraft – a leading indicator for business investment – rose 1.0 percent. Later in the morning, New Home Sales for the month of September looked, on the surface, like a surprisingly strong figure. Indeed, the index rose 4.8 percent in September from the month prior to 770K while supply levels fell back to 8.3 months and median prices jumped to $238,000 from $232,100. Sounds great, right? Wrong. A deeper look into the data shows that these “improvements” came simply because the revisions were so much lower for prior months – specifically August – that it made the September data look positively radiant. The August reading was amended to reflect that new home sales dropped to a nearly 11 year low of 735K while supply levels were revised all the way up to 9 months. Why all of these revisions? The new home sales report is based off of contract signings, but revisions come into play when cancellations occur before the actual closing if, for example, the homebuyer can’t get approved for the financing. As a result, it’s pretty clear that this report is unreliable as a gauge for the status of the housing sector given the amount of adjustments made to the index. Fed fund futures continue to price in an 86 percent chance of a 25bp cut on October 31st, and with the housing sector still deteriorating and US equities teetering at current levels (the DJIA and S&P both closed little changed for the past two days), the FOMC is likely to follow the market’s lead and take the benchmark lending rate down to 4.50 percent next week.

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