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Dollar Falls to 15 Year Low

November 28, 2006

The U.S. dollar fell to a fifteen year low today, because of recent remarks by the fed chairman about inflation and the slow housing market.

US house prices fell 3.5pc to an average $221,000, the third month of declines. Stocks of unsold homes rose to 7.4 months' supply, the highest since 1993. The US consumer confidence index fell sharply to 102.9. The "truckers index" of tonnage shipped by US haulage companies was down 1.8pc in October, a leading indicator of contraction. Merrill Lynch called the fall "borderline recessionary".

The dollar continued its slide against the euro, dropping to $1.3194 after the Federal Reserve chairman, Ben Bernanke, said the housing slump "would be a drag on economic growth into next year". Mr Bernanke said official figures did not pick up the "sharp increase" in cancellations on house deals and might understate the inventory glut. "Any significant effect on consumer spending arising from further weakness in housing would have important implications for the economy," he said.

The European papers are full of gloom and doom about the ever-weakening dollar, and reports of financial leaders' calls not to panic. Yet strangely, the headlines in the U.S. media gloss over this fact. There is quite a disconnect here, which is quite interesting. Oil is up and related stocks are up. Housing prices are down and falling fast.

Chairman Bernake is worried about inflation and signalled that more interest rate hikes are a possibility. But with the reports today of declines in consumer confidence and in durable goods orders, raising interest rates hardly seems prudent.

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