US Dollar Strengthens on Hints of Policy Tightening by FOMC Minutes

August 19, 2021
US Dollar Strengthens on Hints of Policy Tightening by FOMC Minutes August 19, 2021 Lennox Hamilton

The US dollar index was changing hands at about 93.43 against a bouquet of currencies on Thursday, up from 93.1 in the previous session and floating near its peak point since the final week of March, after minutes from the most recent FOMC meeting revealed Fed officials are in the likelihood of reducing stimulus in 2021, assuming the economy evolves extensively as expected.

Several market players now anticipate that the Fed will unveil a tapering timetable at the Jackson Hole Symposium schedule in the forthcoming week. The economic data continues to provide mixed signals.

Building permits in the United States increased by 2.6% from the previous month to a seasonally adjusted yearly rate of 1.635 million units in July 2021, ending a three-month slide and above market forecasts of 1.61 million units.

The volatile multi-segment increased 11.2% to 587,000, while single-family authorizations fell 1.7% to 1.048 million. Housing starts in the United States fell 7% in July 2021, to a seasonally adjusted annual pace of 1.543 million units, far below market expectations of 1.6 million.

It is the lowest figure in three months, owing to increasing building and house prices. Single-family home starts decreased 4.5% to 1,111,000, while multi-family housing starts plummeted 13.6% to 412,000. Mortgage applications in the United States fell 3.9% in the week ending August 13th, offsetting a 2.8% rise the earlier week, according to statistics from the Mortgage Bankers Association.

It is the most precipitous drop in four weeks. Refinance applications fell 5.3%, while buying increased 0.8%. The average fixed 30-year mortgage rate increased 7 basis points to 3.06%, its highest level in four weeks.

“Mortgage rates rose past week in response to an aggregate rise in Treasury yields, which began on a high note after the good July jobs data before moderating due to lower consumer confidence and worries over increasing Covid-19 infections.”

Notwithstanding a second consecutive weekly decline, average loan amounts stay around record highs. “This is a continued indication that sales prices are still high, driven by strong competition resulting in increasing home-price growth,” stated Joel Kan, assistant vice president of economic and industry predicting for the Mortgage Bankers Association.

In August 2021, the NAHB housing market index in the United States fell to 75, the lowest since July 2020 and far lower than market forecasts of 80. The existing single-family sub-index decreased to 81 from 86 the earlier month, while the barometer for potential buyers dropped to 60 from 65. In the meantime, the sub-index for house sales during the forthcoming six months remained steady at 81.

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