Dollar Wavers on Disappointing CPI, Housing Starts Reports

NEW YORK (Forex News Now) – The dollar wavered in online forex trading today as a flat CPI report was joined by a disappointing housing starts and building permit report.

The U.S. Department of Labor announced that total consumer prices for the month of October rose by 0.2%, which is less than the anticipated increase of 0.3%. The previous report indicated a rise of 0.1% for the month of September.

Energy prices rose by 2.6%, but was mostly offset by a substantial decrease in prices for used vehicles.

So far, the overall CPI is up only 0.9% on the year, with core inflation only up 0.5% – far short of the Federal Reserve’s goal of 2.0%.  The closer core inflation comes to the goal, the stronger the economy is perceived to be.  With flat or sluggish growth, though, doubts persist about the economic recovery.

According to Yelena Shulyatyeva, an economist at BNP Paribas, the data in the report “highlight the lack of pricing power in the economy and suggest that firms will increasingly struggle with managing rising input costs as they are unable to pass these along to price sensitive and cash-strapped consumers.”

Deflation concerns

Deflation is now a much larger concern than inflation for most currency market trading analysts.  The worry is that sluggish inflation will give way to deflation due to high unemployment and other downward pressures, which could result in a downward spiral a la Japan in the 1990’s.

To compound these worries, housing starts fell 11.7% to a seasonally-adjusted rate of 519,000 for the month of October, according to the Commerce Department.  This is the lowest mark in 18 months for an indicator that is crucial to determining the health of the housing industry.

The fact that building permits – an indicator of future construction – rose by 0.5% did little to avoid disappointment.

Home builders have been plagued by worries for the past two years amidst the worst housing market in decades. High unemployment, high inventories, and rock-bottom prices among existing houses have all combined to worry investors and home builders alike.

Online forex trading saw the dollar fall as a result of the double whammy. So far today, the dollar is down 0.2% against the yen, to 83.11, 0.34% against the euro, to 1.3533, and 0.24% against the pound, to 1.5922.

The dollar index as a whole is down 0.33% to 78.946, well below yesterday’s close of 79.21.