This morning's mixed U.S. economic reports had a limited impact on the U.S. dollar. Based upon the consumer price index, inflationary pressures increased in October. However housing starts and building permits took a big tumble which indicates that one of the first sectors to bottom in the U.S. economy is beginning to show pockets of weakness. Housing starts fell 10.6 percent to the lowest level since April while building permits dropped 4 percent to the lowest since May. The market had anticipated increases in both releases, but as we suggested in our Daily Report last night, the sharp decline in builder confidence in October points to weakness in the housing market. There is a lot of inventory on the market and more set to hit over the next year and therefore the lack of demand is discouraging new projects.
Meanwhile consumer prices rose 0.3 percent in October with prices excluding food and energy rising 0.2 percent. On an annualized basis, prices are still slowing albeit at a much more moderate rate. In October, year over year CPI fell 0.2 percent compared to the prior year which represents a marked improvement from the -1.3 percent drop in September. With commodity prices rising, it is not surprising to see the upside pressure on consumer prices. However outside of the contribution from food and energy, there was also a notable increase in car prices and airline fares.
Although the reaction in the currency market to the CPI and housing reports were limited, gold prices continue to hit record highs. Gold bugs are bidding up prices to hedge against inflation and the U.S. dollar. This suggests that at least one group of traders or investors still believe the dollar could be headed lower. Treasury Secretary Geithner and Federal Reserve President Bullard are scheduled to speak this morning.
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