U.S. Dollar Strengthens as Housing Starts Exceed Expectations, Pressuring Major Currency Pairs
By Vladimir Zernov
Source: FX Empire (Full original article: https://www.fxempire.com/forecasts/article/u-s-dollar-gains-ground-as-housing-starts-beat-estimates-analysis-for-eur-usd-gbp-usd-usd-cad-usd-jpy-1542499)
The U.S. dollar gained traction in global currency markets on Tuesday, June 18, 2024, following the release of stronger-than-expected housing data in the United States. In a notable development that influenced investor sentiment, the USD’s rally put pressure on several major currency pairs, including the euro (EUR/USD), the British pound (GBP/USD), the Canadian dollar (USD/CAD), and the Japanese yen (USD/JPY). The positive economic data provided further support for the Federal Reserve’s cautious approach to policy easing, reinforcing market expectations that interest rate cuts are unlikely in the immediate future.
U.S. Economic Overview
New housing starts, a key economic indicator reflecting the number of new residential construction projects, significantly exceeded market forecasts. This data confirmed ongoing strength in the housing sector, which is resilient despite high interest rates and elevated mortgage costs.
Key housing data highlights:
– U.S. Housing Starts: Rose to 1.631 million in May 2024, surpassing the consensus estimate of 1.370 million.
– Building Permits: Also came in at a stronger-than-expected 1.386 million, though slightly below the previous month’s revised figure.
The surge in residential construction underscores resilience in the real estate market and suggests that domestic demand remains robust. Consequently, investor enthusiasm for the U.S. dollar increased, supported by the idea that the Federal Reserve will have fewer reasons to accelerate monetary policy easing in the near term.
The stronger housing numbers arrived amid growing uncertainty over the economic trajectory in both the Eurozone and United Kingdom. Meanwhile, in Canada and Japan, diverging monetary policies are continuing to shape currency movements.
Analysis of Major Currency Pairs
EUR/USD: Euro Slips as Dollar Gains
The EUR/USD pair experienced downward pressure following the release of the U.S. housing data. The euro, already under pressure due to political uncertainty within the European Union, weakened further as the U.S. dollar advanced.
Key factors affecting EUR/USD:
– U.S. housing data reinforces expectations that the Federal Reserve will maintain higher interest rates for longer.
– The euro remains weighed down by political turmoil within the Eurozone bloc, particularly related to upcoming political transitions and fragmented parliamentary outcomes in France and Germany.
– Technically, EUR/USD faced resistance near the 1.0750 level. The pair failed to gather upward momentum and pulled back toward the 1.0725 area, testing short-term support levels.
Looking ahead, traders should closely monitor:
– Eurozone Consumer Confidence data and preliminary PMIs set to be released later this week.
– Any revisions to the Fed’s rate outlook or new comments from FOMC officials.
The euro’s bearish trajectory will likely continue if economic divergences between the U.S. and Eurozone widen.
GBP/USD: Pound Suffers Amid Dollar Strength
The British pound also fell against the U.S. dollar as global FX markets reacted to the latest U.S. housing indicators. The GBP/USD pair, which has exhibited range-bound behavior in recent days, failed to sustain any upward moves and retreated below the 1.2700 level.
Market drivers for GBP/USD:
– U.S. economic resilience remains a core theme, reassuring dollar bulls.
– The Bank of England’s policy meeting scheduled for Thursday remains a focal point. Markets are expecting a hold on rates at 5.25 percent.
– UK inflation data, due before the BoE meeting, will be instrumental in shaping the bank’s messaging and subsequent pound trajectory.
At present, GBP/USD sits near critical support at the 1.2690
Explore this further here: USD/JPY trading.