US Economy Sends Mixed Signals as Consumer Confidence Falls

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The United States reported a severe decline in consumer confidence this month, despite earlier expectations to the contrary.

From February’s 68, consumer confidence fell by 8.3 points to 59.7 in March. Initial consensus was that the February figures would be maintained. The drop was primarily blamed on the federal budget cuts that took effect earlier this month. The cuts amounting to $85 billion would involve cuts in contracting as well as forced unpaid leaves of employees in April.

Despite consumers’ pessimistic view of the economy, many economists believe that this is only a temporary reaction to the “sequester”, as the budget cuts are commonly referred to.

On a positive note, the US housing market has shown signs of recovery in the past few months. According to Standard & Poor, housing prices rose by 8.1% in January, the biggest rise on a year on year basis in six years. Orders on overall durable goods, meanwhile, increased by 5.7% in February, which is higher than the 3.8% consensus and January’s 3.8% decline. Core durable goods, however, fell by 0.5% in February after a 2.9% increase in January.

Overall, the US has been steadily showing signs of improvement in its economy, although it still has a lot to do to sustain that improvement. The market reflected this sentiment, with the EUR/USD going on a rollercoaster ride on Tuesday’s US trading. The pair fell by 0.05% at 1.2847, rising from the session low of 1.2829 and a high of 1.2890. During the Wednesday’s Asian trading session, the pair recovered again at 1.2865.

Part of the mixed performance of the pair was also due to lingering anxiety in the banking crisis in Cyprus. There are fears that the current restructuring of banks in the country would also happen in other members of the Eurozone. This could mean that biggest shareholders of banks would be the one to fund the bailout, as is the case in Cyprus.

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By FX Strategy Team, Published on 27th of March 2013
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