The jump in US mortgage rates over the past several weeks has put the housing market recovery on ice, as the fastest rise in US Treasury yields since 1994 has home buyers exhibiting a bit more hesitance than previously thought. The June Existing Home Sales completes the trifecta of weak June US housing data, which will inevitable force US monetary policymakers to rethink the path of unwinding QE3. For context, here are the three big June misses (first discussed in today’s Morning Slices report):
- Building Permits: -7.5% versus +1.5% expected, from -2.0% (revised higher from -3.1%) (m/m)
- Existing Home Sales: -1.2% versus +1.5% expected, from +3.4% (revised lower from +4.2%) (m/m)
- Housing Starts: -9.9% versus +5.0% expected, from +8.9% (revised higher from +6.8%) (m/m)
During June, the national 30-year average mortgage rate, according to Bankrate.com, jumped from 4.10% to 4.39%, a +7.07% monthly increase. This quick rise pales in comparison to the jump in mortgage rates in May, when the same rate rose by +19.53%, from 3.43% to 4.10%. Given the implication that borrowing costs are rising, a further sustained increase in US yields has negative implications for the US housing market, and thus, for the US Dollar. Already today, US Dollar weakness has transpired in the wake of the soft housing data.
USDJPY 1-minute Chart: July 22, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
In the hours leading up to the release, the USDJPY had slipped under ¥100.00, after trading as high as 100.61 at the start of the week. However, following the announcement, the USDJPY washed out from 99.57 to as low as 99.28, and at the time this report was written, the pair traded back to 99.42. Similar price action was observed in the EURUSD, which had rallied from $1.3160 to as high as 1.3214.
— Written by Christopher Vecchio, Currency Analyst