Forex Wrap-Up: Headlines Hurt Stocks But Not Dollar

July 25, 2008

Negative headlines relating to the US economy may be dominating these days - worse-than-expected existing home sales; Ford’s (F) $8.7 billion loss for second quarter etc - but still none of them have been able to dislodge the US dollar. This week marks the second week the dollar closed up against major currencies such as the Euro, Swiss franc, Japanese yen, Aussie and Kiwi, and this has been due to traders repricing their expectations of a near-term rate hike by the Federal Reserve after Philadelphia Fed chief Plosser said that interest rates should be hiked sooner or later. And as mentioned earlier, it doesn’t matter that he only has one vote to give since his sentiments are likely to echo that of his other voting FOMC colleagues.

Sluggish US housing data released this week, especially that of US existing home sales, is likely to weigh on US stocks, but is unlikely to affect the USD much. In any case, the greenback had plenty of support from Friday’s release of economic data. The final University of Michigan consumer sentiment index came out better than what most had expected, jumping to 61.2, from 56.4 in June, compared to the initial reading of 56.6. Plus, US durable goods orders for June also increased by a larger-than-expected 0.8%, with demand rising for automobiles as those orders rose 1.8%, the most since July 2007.

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