Tuesday, January 27, 2009

Low Consumer Confidence Pushes Dollar Higher

Consumer confidence fell again, this time to the lowest level on record. Consumers fear the worst, and as a result they are losing all appetite for risk. That means they will be heading for the relative safety of US dollars according to currency expert Kathy Lien. For more insight into how currencies should perform based on the latest report, read Kathy Lien's blog post below.

In more than 40 years, we have never seen US consumers this pessimistic. The Conference Board’s report on consumer confidence fell to 37.7, the lowest level on record. The disappointing consumer confidence report will drag down risk appetite and drive investors into the safety of US dollars. The rally in the US dollar is a reflection of more panic selling and not optimism about US economy. On the heels of the report, we have already seen the EUR/USD and equities turn negative. We may not see a recovery in confidence Until job security is no longer a major concern. Unfortunately with headlines in national papers touting the 74k jobs axed in one day this morning, consumers will not turn optimistic anytime soon. The one silver lining in the report is that we have seen an increase in plans to buy automobiles within the next 6 months. Major discounts are enticing consumers to buy new cars. Looking ahead, discounts and incentives will be the only for businesses to push inventory. Fourth quarter GDP is due for release on Friday and weak consumer confidence supports the market’s belief that growth was the weakest in 26 years.

Earlier this morning, S&P/CaseShiller reported that house prices fell 18.18 percent in the month of November, the largest decline on record. Unfortunately house prices still have room to fall as the labor market remains weak and more inventory floods the market over the next few months.

This post can also be viewed on kathylien.com.

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