US Dollar boosted by expectations of rate hike, strong US home sales
The US dollar surged on Tuesday, after being given a big boost by hawkish comments from a core FOMC member. This pressured the euro which tumbled to 1.1134.
Federal Reserve board member Jerome Powell said that there was a 50/50 chance of a Fed rate hike in September. He also believes there is a possibility of another hike in December. He did specify that any increase in rates depends on improving US economic data.
Another factor that helped lift the dollar was a strong number in new home sales which rose in May to the highest level in seven years, signaling the housing sector is gaining momentum. Sales climbed 2.2 percent to a 546,000 annualized pace, exceeding most forecasts. The pickup in demand to buy new homes points to gains in construction of residential real estate that will contribute to overall US gross domestic product for the rest of the year.
Tuesday’s new home sales data comes after Monday’s existing home sales data. Previously owned US homes sold in May at the fastest pace since November 2009.
The improving economic data in the US will make it more likely for the Federal Reserve to increase rates later this year. This view is dollar-positive.
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