U.S. Dollar Hits 12-Year Low Against the Yen

Record highs in the EUR/USD is something we have grown accustomed to, but a fresh 12 year low in USD/JPY is something new. This move suggests that traders are suspicious of whether the Fed’s action Tuesday will have a lasting impact on the financial markets. Rate cut expectations have also rebounded with the market now pricing in a 74 percent chance of a 75bp rate cut next week, up from a 62 percent chance yesterday.

How much the Fed actually eases will be largely dependent upon tomorrow’s retail sales report. With US corporations cutting jobs two months in a row and foreclosures rising, consumer spending will certainly suffer.

According to MasterCard’s data, spending In the month of February dropped 1.1 percent, their largest decline in 5 years, when they first started tracking the data. However, the absolute value of retail sales could increase because gasoline and food prices are on the rise. It is therefore important that traders watch not only the headline numbers, but also the details of the consumer spending report.

Don’t forget that import prices will be released at the same time as retail sales. Prices are expected to rise but it should only have a limited impact on the US dollar. The bigger market mover is undoubtedly the retail sales report. Meanwhile, at the Gulf Cooperation Council, Qatar confirmed that they will be keeping their US dollar peg while the Saudi Monetary Authority called the US dollar a good buy.

An article in the Wall Street Journal today talks about the degree of Middle Eastern investment into the US real estate market. With the dollar continuing to fall, these investments could pick up pace, providing support for the ailing housing market.

Comments

[nealelkin]

It is interesting to note the growing allocation to US real estate among Middle Eastern investors. However, there needs to be a critical distinction between this allocation to mainly commercial real estate assets vs residential real estate asssets. There has been too little focus among the media discussing the different value drivers between commercial and residential in both the debt (RMBS vs CMBS) and equity (RPX vs Moody's/REAL CPPI) markets. The falling dollar and sliding equity prices make the commercial real estate market appealing to non-US investors. There is little appetite for those institutional investors to obtain residential real estate assets

[AmesTiedeman]

Nealelkin:

They can buy cheap so they are doing just that, buying cheap!