Foreigh Exchange Rates vs. Mortgage Rates

If you've ever looked over my REI profile page thouroughly, you've noticed that I do a small bit of day trading. That trading is in the currency markets called FOREX (Foreign Exchange). I usually have two laptops in front of me all day long. One is of my forex market positions and the other is where I do my mortgage work. There has been a lot of action this week on both fronts. The fun thing is, they seem to be related. That's not much a surprise, but it's been fun to see exactly how closely they do shadow one another. Here's an example.

When my line graph on my Dell (Forex computer) shows me that the U.S. Dollar is getting strong against the Euro, I turn on my radar for any interesting news in the mortgage world. Sure enough, about an hour later (assuming the dollar continues to stay strong and it wasn't just a spike), I get 10 emails from my company telling me to suspend my rate locks because Chase is pricing for the worse, and Citi is pricing for the worse, and, and, and, etc.

At first, it seemed like a fluke. But then a couple days later I was able to witness the opposite. I saw the dollar get weak. And, sure as can be, I got emails saying "suspend, Citi is pricing for the better", etc, etc.

Now, if you're wondering why high rates come with strength in the dollar, let me put it really simply. When Americans make lots of money and have a strong economy, they spend lots of money. When we spend lots of money, we can afford higher rates. When the dollar is weak, we travel less, spend less, and get stingy with our wallets. When that happens, lenders lower rates.

I think it's fascinating, and I haven't even begun to get into how the Fed perceives the whole situation. Luckily for us, there's very little correlation between what the fed does to interest rates and what mortgage rates do (except for in the case of Home Equity Lines Of Credit). The Fed's rate changes only directly affect revolving credit, not closed end cretid. For a concise definition of closed end and revolving credit, see a future blog of mine.

I look forward to hearing your comments.

Abe