U.S. Pending Home Sales Increase 2.1% in February, Currency Traders Show Muted Reaction
Pending home sales in the world’s largest economy unexpectedly increase 2.1% in February after contracting 2.8% in the previous month, but ongoing weakness within the private sector may continue to bear down on the housing market as Americans cope with rising energy prices paired with the protracted recovery in employment. The breakdown of the report showed demands for existing homes increased in three of the four regions, while sales in the Northeast tumbled another 10.9% following the 2.4% contraction back in January. As the housing sector remains depressed, the Federal Reserve is likely to carry out the additional $600B in quantitative easing, and the central bank may look to support the real economy in the second-half of the year as it aims to balance the risks for the region.
Indeed, currency traders showed a muted reaction to the housing report, with the rebound in the EUR/USD gathering pace throughout the early U.S. trade, and the exchange rate may continue to push higher over the near-term as it maintains the upward trend from earlier this year. As the European Central Bank sees scope to reestablish its exit strategy over the coming months, the hawkish outlook held by the Governing Council is likely to prop up the single-currency over the near-term, and the EUR/USD may make another run at 1.4300 as interest rate expectations gather pace. According to Credit Suisse overnight index swaps, investors are now pricing 125bp worth of rates for the next 12-months, but the heightening risk for contagion could bear down on the exchange rate as investors speculate Portugal to share Ireland’s ill fate.
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