Posted by Laz on .
How do the drop in sales such as a new homes effect the value of the U.S. dollar relative to other currencies?
Lets start with am international supply and demand for US dollars, expressed in terms of of some foreign currency such as Euros.
The demand for US dollars comes from foreigners who want to buy US goods. An increase in the demand for US goods would lead to an increase in the demand for dollars. However, I think we can safely assume foreigners don't want to purchase new homes in the US.
One source supply of dollars comes from investors (foreign and domestic) who are looking for some return on their money. One source of investment is financing new homes purchases.
Now then, if new home sales falls, then the financing of new homes must also fall. Investers, looking for alternative investments, sell dollars for Euros. So, the supply of dollars increases. Which means the price of dollars in terms of Euros falls. Soooooo, I would assert that a drop in new home sales in the US would cause the value of the US dollar to drop.
Whew. I hope this helps.