Thursday August 7, 2008 - 20:08:36 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar gains on strong housing data, ECB rate view
(Recasts, updates prices, changes byline)
* Housing data helps boost the dollar
* Euro falls as ECB's Trichet highlights risk to growth
* Dollar index hits highest level in 5-1/2 months
By Vivianne Rodrigues
NEW YORK, Aug 7 (Reuters) - The U.S. dollar rose broadly
and hit a 5-1/2-month high against a basket of currencies on
Thursday, bolstered by a surprise rise in June home sales and
diminished expectations for euro zone interest rate increases.
The gain in pending home sales offset a bleak U.S. jobless
claims report, supporting a growing view that the current
housing slowdown may be nearing a bottom. The data backed
expectations of U.S. rate hikes this year, which has fueled a
rebound in the dollar over the past two weeks.
In contrast, European Central Bank President Jean-Claude
Trichet, in remarks after the bank held rates at 4.25 percent,
said he expects economic growth in the euro zone to weaken
substantially this year, even as he sees inflation remaining
above the ECB's target. For more details, see [ID:nL7650401]
Following his comments, investors unwound bets for ECB
interest rate increases this year, limiting the euro's appeal
to global investors.
Nick Bennenbroek, head of foreign exchange strategy, at
Wells Fargo in New York, said the kneejerk reaction to
Trichet's comments was to buy the dollar and sell the euro,
although he believed the ECB chief's statements were balanced.
"Overall, today's price action reflects the market's bias
toward buying the dollar. There is a general perception that
weakness across other international economies are more
pronounced than it was earlier this year, prompting investors
to sell foreign currencies and buy the dollar."
The dollar index on the ICE futures exchange rose to as
high as 74.604 .DXY, the highest since late February. It was
last up 0.3 percent at 74.509.
The euro <EUR=> fell to a seven-week low at $1.5333, down
0.5 percent from late on Wednesday. The dollar rose 0.2 percent
against the Swiss franc to 1.0621 francs <CHF=>.
HOME SALES RISE
Data showed on Thursday that U.S. home sales contracts
signed in June rose to their highest level since October. For
details, see [ID:nN07290813]
"This is the second upside surprise in three months, so it
is hard to ignore. Anything which reduces inventory, whether of
foreclosed homes or not, is a very welcome development," said
Ian Shepherdson, chief U.S. economist at High Frequency
Economics, at Valhalla, New York.
"It does not fix the housing market, though, but it might
be the beginning of the end of the crash," he said.
The pending home sales data outweighed a report earlier in
the session showing the number of U.S. workers filing new
claims for jobless benefits rose 7,000 last week to a more than
The jobless claims' impact was most evident in the dollar's
price action against the yen. The dollar fell 0.3 percent to
109.37 yen <JPY=>, as investors also took profits on the
greenback's recent gains.
"The initial claims number was pretty ugly," said Ronald
Simpson, managing director of global currency analysis at
Action Economics, in Tampa, Florida. "For now, that's going to
limit the upside for the dollar."
Further pressuring the dollar was an increase in crude oil
prices by more than 1.0 percent to $119.94 per barrel CLc1,
after falling to a three-month low on Wednesday.
U.S. stocks were also lower, with investors disappointed by
insurer American International Group Inc's (AIG.N: Quote, Profile, Research, Stock Buzz) third
straight quarterly loss and weaker-than-expected same-store
sales in July at Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), the world's
"There are still some near-term concern over the economy,"
added Simpson. "Some of the retail sales numbers that came in
today were worse than expected."
Most analysts now expect the dollar to gain in the second
half of the year, as the credit crunch showed increasing signs
of spreading to the euro zone, Japan, Australia and other major
On the other hand, the United States, the first major
casualty of the nearly year-old credit crisis, has garnered
support from the decline in oil prices after they hit record
highs last month and a generally steady run of U.S. economic
Elsewhere, sterling fell to an eight-week low versus the
dollar as the Bank of England held rates steady at 5.0 percent
as expected. with policy-makers trying to balance slowing
growth and rising inflation. Sterling was last down 0.2 percent
at $1.9434 <GBP=>.
(Additional reporting by Gertrude Chavez-Dreyfuss and Wanfeng
Zhou in New York; Editing by Gary Crosse)
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