The US dollar took a breather from its selloff on Thursday as recession fears clouded the financial markets amid abysmal economic data. The Federal Reserve’s intentions on interest-rate policy were also in focus, with investors concerned about an elevated federal funds rate heading into 2023.
The US real estate market continued to get decimated in October, as housing starts fell 4.2% to 1.425 million units and building permits dropped 2.4% to 1.526 million. This comes one day after the National Association of Home Builders’ (NAHB) Housing Market Index extended its losses for the 11th consecutive month, sliding to 33 in November, below the market forecast of 36. This was also the lowest reading since 2012.
Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” said NAHB Chairman Jerry Konter in a statement.
According to the Bureau of Labor Statistics (BLS), the number of Americans filing for first-time unemployment benefits eased to 222,000 for the week ending November 12. Continuing jobless claims increased to 1.507 million, while the four-week average, which removes week-to-week volatility rose to 221,000.
The Federal Reserve Bank of Philadelphia’s Manufacturing Index tanked to -19.4 in November, down from -8.7 in October. Business conditions, new orders, and employment levels plunged, although prices paid and capital expenditures improved.
A flurry of comments from Federal Reserve officials is flooding the press, with the latest remarks coming from St. Louis Fed Bank President James Bullard, who suggested that the series of rate hikes since March “have had only limited effects on observed inflation.”
Bullard also rejected the idea that the current policy rate is restrictive.
“While the policy rate has increased substantially this year, it has not yet reached a level that could be justified as sufficiently restrictive, according to this analysis, even with the generous assumptions,” Bullard said in prepared remarks at an economic event in Louisville. “To attain a sufficiently restrictive level, the policy rate will need to be increased further.”
Investors are mostly betting that the central bank will pull the trigger on a 50-basis-point rate hike at the December Federal Open Market Committee (FOMC) meeting, according to the CME FedWatch Tool.
US Treasury yields surged on these comments, with the benchmark ten-year yield up 7.9 basis points to 3.773%. The one-year bill added 4.9 basis points to 4.669%, while the 30-year bond picked up 4.2 basis points to 3.902%. The recession-indicating spread between the two- and ten-year yields reached nearly -70 basis points.
The US Dollar Index (DXY), which measures the greenback against a basket of currencies, advanced 0.68% to 107.01, from an opening of 106.28. The index is down more than 1% on the week, paring its year-to-date rally to 11.5%.
The USD/CAD currency pair rose 0.3% to 1.3368, from an opening of 1.3328, at 13:42 GMT on Thursday. The EUR/USD tumbled 0.54% to 1.0340, from an opening of 1.0396.