MUFG said the U.S. dollar was modestly weaker overnight as markets lowered their expectations for a Federal Reserve rate increase in October. The bank linked the currency’s move partly to September housing data, while saying it still expects one more rate increase this year, in December.
MUFG senior currency analyst Lee Hardman estimated that markets had priced about four basis points of October tightening as of Oct. 21. Hardman said the bank could not rule out an October increase after September inflation data came in stronger. He also said housing weakness was unlikely to be a major focus for the Fed, limiting its potential influence on the dollar.
The U.S. Census Bureau reported that privately owned housing starts fell 5.2% from August to a seasonally adjusted annual rate of 1,221,000 units in September. The August rate was revised to 1,288,000. The bureau’s published margin for the monthly change is plus or minus 11.8%.
The National Association of REALTORS® (NAR) said pending sales of existing homes fell 7.3% month over month and 11.3% year over year. The measure counts signed contracts for homes that have not yet closed; NAR says those transactions usually close within one or two months. NAR chief economist Lawrence Yun attributed the September decline to mortgage rates that had climbed quickly. The association said mortgage-rate changes weigh more on housing affordability than job and income gains, putting pressure on prospective buyers.
Inflation remains above the Federal Reserve’s 2% goal. The Bureau of Labor Statistics (BLS) said the consumer price index rose 0.6% from August and 3.7% over the 12 months through September. The Fed raised its federal funds target range by 25 basis points to 3.75%-4.00% on Sept. 16. Minutes from that meeting said most participants thought another increase could be warranted before year-end, with later decisions dependent on incoming information.
The Fed’s next meeting is Tuesday and Wednesday, Oct. 27-28. Its following meeting is scheduled for Dec. 8-9.
