Money and Metals

Reuters reports on the US dollar and housing. "The dollar's strength isn't wholly dependent on the state of the U.S. housing market, but investors said on Tuesday they are focusing more closely on that key segment of the world's largest economy than they have in years."

"As house prices appreciated, existing homeowners simultaneously cashed out equity to buy consumer goods, adding to the economy's advance and helping to create new jobs. The growing economy did two things: raise confidence in U.S. assets and increase investor demand for the dollars to buy them. At the same time, steady growth prompted the Federal Reserve's policy setting committee to raise benchmark interest rates which further stoked demand for dollar-denominated securities."

"But after 13 interest rate hikes with at least one more expected, analysts say slower demand for housing is reducing consumer spending and eroding demand for dollars. 'With a year and a half of hikes, there are indications now that (home) prices are starting to moderate across the country,' said Charmaine Buskas."

"'With the housing market expected to cool through 2006, the drivers of U.S. growth are expected to change, but this is unlikely to keep the Fed from tying up its tightening cycle any later than' March, she added."

" If 'the U.S. housing market simply falls under its own weight, a distinct possibility given the major overhangs in property values in many segments of the nation, the hit on wealth-dependent consumption and GDP growth could then be a major negative for the dollar,, said Stephen Roach, chief economist at Morgan Stanley."

"With U.S. homeownership running at 68.8 percent in the third quarter of 2005, according to the Census Bureau, a stall in the housing market will be felt across a wider swathe of the U.S. population than the stock market crash of 2000."