The US dollar hits a six week high against the euro and a three month high against the yen and key US interest rates bounced to their highest level since January.
Is the American economy about to take off, or is it yet another case of the market and speculators running ahead of reality?
Last week saw generally stronger data in the US raise fears that the Fed won’t be cutting interest rates later this year.
That saw the market rates on US Government bonds rise to their highest level since January of 4.9 per cent for the 10 year benchmark security and close Friday at 4.86 per cent.
The yield of the 30-year bond rose to 5 per cent,the highest since last August as dealers priced out the chances of a rate cut by the Fed later this year.
Driving this feeling was the upturn in new home sales which rose 16 per cent in April, according to figures from the US Commerce Department. This was after new home sales hit a seven year low in February.
Durable goods orders also rose strongly in April and have now risen for the past few months, an indicator that the US economy is in recovery mode.
But then on Friday a dose of reality with the National Association of Realtors reporting that sales of existing homes fell to their lowest annual rate in four years in April.
And that is a far more significant figure than new home sales.
New home sales account for just 15 per cent of housing activity in the US, the existing home sales sector accounts for the other 85 per cent and is therefore a far more influential and convincing indicator of consumer confidence and home lending and buying trends across the industry.
Commentators said there were clear signs that financiers have tightened their lending criteria in the wake of the subprime mortgage problems, and that home owners are finding it tougher to sell because the supply of new buyers has fallen.
This week will test this belief about the direction of the US economy: there will be the May payroll numbers, the minutes from the last Fed meeting which left rates unchanged; an update on first quarter economic growth and inflation and more information on house prices.
The greenback climbed half a per cent against the euro last week and around the same amount against the yen, the highest since mid February.
The 10-year Treasury bond touched 4.9 per cent on Thursday, the highest since the end of January.
The yen dropped to an all-time low against the euro last week after North Korea fired missiles into the Sea of Japan. That was after South Korea showed off a new US built anti-missile cruiser.
The Canadian dollar rose to a 30-year high against its US dollar last week. The Loony climbed to 92.56 US cents after touching 92.79 USc on Thursday. (The Australian dollar fell).
The British pound also rose against the greenback.
But while interest rates were rising and sales of new homes falling, average rates on US 30-year mortgages jumped to their highest level since October 2006.
According to a weekly survey released by housing financer, Freddie Mac, 30 year mortgages averaged 6.37 per cent, up sharply from 6.21 per cent the previous week earlier and the highest since they hit 6.40 per cent in the week ended October 26, 2006.
Fifteen-year mortgages averaged 6.06 per cent, the first time above six per cent since mid-February.
A year ago, 30-year mortgages averaged 6.62 per cent and 15-year mortgages 6.23 per cent.
That difference is reflective of the housing slump. Analysts say the rising mortgage rates are following the jump in US treasury bond yields.
But coming at a time when the number of buyers of existing homes is falling because of a lack of demand (and tighter credit standards); it’s a sign of the continuing confusion in US markets caused by the fallout from the subprime mortgage crisis earlier this year.
The Aussie dollar closed at 81.90 USc, about 1.70c under its recent high.
Australian 10 year bonds are now above 6 per cent for the first time in around three years.
