Jobless Claims and Housing Starts Highlight Seismic Challenges Facing U.S. Economy

Daily Forex Fundamentals | Written by GFT | Jan 22 09 14:50 GMT |

The rebound in the foreign exchange market on Wednesday was short lived as another wave of risk aversion hits currencies. US economic data was very weak with jobless claims rising to the highest level since 1982 and housing starts dropping 15.5 percent to the worst level ever. Starting with the labor market, continuing claims, which measure the number of people remaining on unemployment rolls rose to 4.607 million. So far we have seen 12 consecutive months of negative non-farm payrolls and as long as claims remain above 500k, we will continue to see net job losses in the US economy. If a bellwether like Microsoft can announce that they are planning to cut 5000 workers, more companies will follow suit especially smaller ones who may not have rainy day funds to weather the storm. In past recessions job cuts have lasted for a minimum of 15 months which means that non-farm payrolls may not turn positive until the second half of the year. The housing market is crippled by the falling consumer wealth and tight credit markets. Even potential homeowners who actually have the money to by are having a very difficult time obtaining financing. Good credit ratings don't really matter any more. with so much inventory still on the market, housing starts and building permits should continue to drop. The labor and housing market data highlight the seismic challenges that the US economy faces but the dollar continues to benefit from safe haven flows. In times of economic uncertainty, investors flock into the lowest yielding currencies. US Treasury Secretary Nominee Geithner Backs Strong Dollar Policy In his confirmation hearing with the Senate Finance Committee, Treasury Secretary Nominee Tim Geithner said that a "strong dollar is in America's National Interest." As potential Treasury Secretary, we expected Geithner to adopt the stance of his predecessors, which is to pay lip service to the strong dollar policy. Over the past few years, the consequences of the US government’s fiscal and monetary actions is a weak and not strong dollar. For any country that is slowing or in recession, a weaker currency is more helpful than a strong one. So there is no real meat to Geithner's comments especially as the Federal Reserve embarks on their "credit easing" policies. It would also have been a mistake for Geithner to say anything otherwise about the dollar at his hearing because rocking the boat could risk his confirmation. Kathy Lien http://www.gftforex.com DISCLAIMER: GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading and GFT Global Markets UK Limited. GFT Global Markets UK Limited is authorized and regulated by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means Global Futures & Forex, Ltd. ARBN 103 508 461, AFS Licence 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au. You should read and consider the PDS before making any decision to deal in GFT products. © 2008 Global Futures & Forex, Ltd. All rights reserved.