The Federal Reserve chairman Ben Bernanke said Washington did not know how bad a state the American housing market was in.

US setbacks see dollar plunge to 15-year low -

By Ambrose Evans-Pritchard -
Last Updated: 1:22am GMT 01/12/2006 -

Your view: Will the dollar hit $2 against sterling?

The dollar tumbled to a near 15-year low against sterling yesterday on
fresh signs of economic trouble in the United States.

An 8.3pc crash in US industrial orders and an admission by the Federal
Reserve chairman that Washington does not know how bad housing really
is set off another day of wild gyrations on the currency markets.

US house prices fell 3.5pc to an average $221,000, the third month of
declines. Stocks of unsold homes rose to 7.4 months' supply, the
highest since 1993. The US consumer confidence index fell sharply to
102.9.

The "truckers index" of tonnage shipped by US haulage companies was
down 1.8pc in October, a leading indicator of contraction. Merrill
Lynch called the fall "borderline recessionary".

The dollar continued its slide against the euro, dropping to $1.3194
after the Federal Reserve chairman, Ben Bernanke, said the housing
slump "would be a drag on economic growth into next year". Mr Bernanke
said official figures did not pick up the "sharp increase" in
cancellations on house deals and might understate the inventory glut.

"Any significant effect on consumer spending arising from further
weakness in housing would have important implications for the economy,"
he said.

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The pound briefly touched $1.95 and surged to eight-year highs against
the yen.

The Japanese currency has been in freefall for months on repeated weak
data. It suffered a fresh blow yesterday after retail sales fell for a
second month, increasing fears that Japan's export-dependent economy
may slow in lock step with America.

The OECD club of rich nations gave warning yesterday in its bi-annual
economic outlook that the world's second-biggest economy was still too
fragile after years of debt deflation to risk a rapid rise in rates
from 0.25pc.

"The return to price stability is proving longer and less assured than
expected. Further monetary tightening should wait until a fully-fledged
exit from deflation finally materialises," it said.

The OECD downgraded its global growth forecast for the 30 leading
economies from 2.9pc to 2.5pc in 2007, and said the US might need to
start cutting interest rates next year.

Chief economist Jean-Philippe Cotis said there was no cause for alarm,
arguing that the US would achieve the "soft-landing" it eluded after
the dotcom bubble in 2000. "What the world may be facing is a
rebalancing of growth," he said. "In the euro area, recent hard data
suggest that a solid upswing may be under way. Growth should remain
buoyant in China, India, Russia and other emerging economies."

In a rare piece of good news that helped calm Wall Street after the
equity rout on Monday, Mr Bernanke said inflation had been "somewhat
better behaved of late".

David Lereah, chief economist for the US National Association of
Realtors, said there might be light at the end of tunnel for the
housing market, citing a slight rise in transactions.

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