Thursday’s Thanksgiving holiday was not celebrated by the Dollar. It had little indeed to be thankful for other than micro-improvements in a couple more statistics relating to the residential property market. The NAHB housing market index, which measures builders’ optimism, went up by one point to 19 from the previous month’s record low. The following day there was an equally modest but similarly unexpected increase in the number of building starts. Nobody was fooled. The improvement in building starts was accompanied by a 14 year low in the number of building permits issued.
The minutes of the last Federal Open Market Committee meeting turned out to be less interesting than the economic forecast that was attached to them. The forecast is Mr Bernanke’s innovation, intended to make the FOMC’s thought process more transparent. It did so last week by revealing lower growth estimates that make further rate cuts more likely. The tone of the Dollar was typically moody throughout the week. Its only bright moment came on Friday when sellers shied away from an attempt on the psychological target at €1:$1.50.
It did not feel like it at the time, Sterling actually had a reasonable week on most fronts. Whilst there was little in the way of hard economic data to help Sterling, the figures that could have hurt failed to do much damage. When the brightest light on the positive side was an improvement in the CBI’s Industrial Trends Survey from +6 to +8 per cent you can see how Sterling was scraping the barrel. The negative news came from lower house prices and an unexpectedly low figure for third quarter economic growth.
The minutes of the November Monetary Policy Committee meeting revealed that Deputy Governor John Gieve voted for an interest rate cut. He is usually considered a policy hawk, inclined towards tighter monetary policy, so his vote for a rate cut gave greater weight to the Bank’s recent bearish inflation report.
In its outlook against the Dollar Sterling’s biggest obstacle is the Euro/Dollar technical resistance at $1.50. If that level can be broken the Euro’s upward momentum should pull Sterling higher. If it cannot, a retreating Euro would surely drag Sterling down.
Its supporters will take heart that Sterling did not come to more grief last week. Its enemies will see it as a lucky escape. Buyers of the Dollar can hope for a renewal of the Dollar’s retreat but should protect themselves with a stop order.
