Home Building Slows on Soaring Costs for Materials and Labor
The slowdown in home building due to escalating costs for materials and labor highlights significant inflationary pressures within the sector. This development impacts not only domestic economic growth but also the broader FX landscape, as currencies may react to shifts in economic indicators such as housing starts and consumer sentiment. Given the ongoing surge in costs, we could see further strain on economic recovery, potentially affecting the USD's strength against other currencies.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman's view aligned closely with the upper bound at 1.12, whereas BofA's stance is at the lower end at 1.04. The insights from the recent economic downturn, particularly in the housing sector, could reverberate through currency valuations and market expectations.
How firms align
JPMorgan shares a similar outlook, supporting the consensus with a target of 1.10, indicating that they too believe in the strength of the Euro amidst potential USD weakness. In contrast, BofA's lower target reflects a more cautious stance, potentially limiting any bullish sentiment on the Euro in the face of rising US costs.
What the data shows
Recent analysis indicates that housing market slowdowns could lead to downward revisions in GDP growth forecasts, which are critical for FX performance. This corresponds with our internal reports that outline shifts in currency strength linked to economic fundamentals, available at /reports/jpmorgan and /reports/bofa.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Rising material and labor costs are slowing home construction — a key inflation signal.
- 02Expect fluctuations in the USD as housing data releases come in weaker than anticipated.
- 03A breach of 1.10 in EUR/USD could signal bullish momentum, contingent on US economic data.
- 04Watch for the upcoming Fed meeting for guidance on potential monetary policy shifts.
Market implications
Traders should monitor the 1.075 level for EUR/USD, as breaking below this could reinforce bearish sentiment. Additionally, the upcoming employment report will provide critical insights into ongoing economic health and may influence currency movements significantly.
Risks to this view
Should upcoming US economic data point to stronger-than-expected growth, it could invalidate the bearish outlook on the USD, shifting sentiment dramatically. Additionally, any major shifts in Federal Reserve policy, particularly hawkish signals, could lead to a stronger USD against the EUR.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.35
Sources & References
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