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US Dollar Flat As Capital Goods, New Home Sales Disappoint Markets

October 25, 2019 at 12:49 by Andrew Moran

A rolled $100 note with many $100 notes on the backgroundThe US dollar is trading relatively sideways against some of its biggest currency rivals to close out the trading week. The latest release of US economic data is disappointing markets, which is raising the probability of another quarter-point decrease to interest rates in October. For now, investors might be adopting a wait-and-see approach to trading the buck prior to next week’s important Federal Reserve policy meeting.

According to the US Census Bureau, new orders for manufactured durable goods declined 1.1% in September, following a revised gain of 0.3% in August. The market had penciled in a loss of 0.8%. Durable goods orders ex defense slumped 1.2% last month, down from the 0.9% drop in August.

Shipments of US capital goods also decreased, signaling that business investment is diminishing and the US-China trade war is still impacting international commerce.

September’s new home sales fell 0.7%, down from the impressive 6.2% jump in the previous month.

But the news was not all bad. The IHS Markit Manufacturing purchasing managers’ index (PMI) rose to 51.5 in October, beating market expectations of 50.7. The compose PMI fell short of the median estimate of 51.6 by clocking in at 51.2. The services PMI met forecasts of 51.0.

Traders now wait for the University of Michigan’s consumer sentiment index for October, and the consensus suggests a reading of 96.0.

Overall, this data is contributing to the likelihood of the US central bank cutting rates at the Federal Open Market Committee (FOMC) meeting later this month. Investors anticipate a 25-basis-point reduction, bringing the target range to 1.50% to 1.75%. The CME Group FedWatch tool shows a 93.5% chance of a rate cut. But what is even more fascinating is that a quarter of the fed funds market is expecting another rate reduction in December, despite Fed dot-plot pegging just one more rate cut in 2019.

So, what about next year? It might be too early to tell right now, but analysts are penciling in either rates to stay at the target range of 1.50% to 1.75% or 1.25% and 1.50%.

The USD/CAD currency pair was unchanged at 1.3071 at 12:40 GMT on Friday. The EUR/USD dipped 0.05% to 1.1099, from an opening of 1.1106.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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