The dollar steadies on strong housing data, Fed testimony in focus

The dollar steadies on strong housing data, Fed testimony in focus

The dollar index held steady around 102.5 on Wednesday, supported by surprisingly strong US housing data. Investors are also awaiting comments from Federal Reserve Chair Jerome Powell’s testimony before Congress later in the day.

Data showed that housing starts in the US surged 21.7% in May, far exceeding expectations. This was the largest monthly increase since 1983 and suggests that the housing market is still recovering from the pandemic.

The strong housing data helped to boost sentiment towards the dollar, which is seen as a safe haven currency. However, investors are also awaiting comments from Fed officials this week for clues on the future path of interest rates.

Last week, the Fed decided to pause its aggressive tightening campaign, but hinted at further policy tightening this year. The central bank said in its latest report to Congress that inflation in key parts of the US services industry “remains elevated and has not shown signs of easing.”

The dollar is likely to remain volatile in the near term as investors weigh the latest economic data and Fed comments. However, the strong housing data could help to support the dollar in the longer term.

Here are some additional factors that could affect the dollar’s direction in the near term:

• The outcome of the US midterm elections in November.
• The pace of economic growth in the US and other major economies.
• The direction of oil prices.
• The outcome of the war in Ukraine.

Overall, the dollar is likely to remain a strong currency in the near term, but its direction could be volatile.