Wednesday September 27, 2006 - 20:37:29 GMT
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FOREX-Dollar drops vs euro after US home sales data
FOREX-Dollar drops vs euro after US home sales data
Wed Sep 27, 2006 4:18pm ET
(Updates prices, adds reference to upcoming US data)
By Steven C. Johnson
NEW YORK, Sept 27 (Reuters) - The dollar edged lower against the euro on Wednesday after a reading on July home sales was revised sharply downward, reviving speculation that the Federal Reserve's next move may be an interest-rate cut.
The sharp decline in July sales was the worst since March 2003 and ultimately outweighed data showing that, in August, more new homes found buyers than the market expected. For more, see [ID:nN26368424]
The dollar briefly popped higher on the August number but it then retraced those gains against the euro.
"The net takeaway was that the revision (for July) was so substantially worse than we thought that it can't really be positive for the dollar," said Boris Schlossberg, currency strategist at Forex Capital Markets in New York.
It suggests investors should be wary of a similar downward revision to the August number in the future as well, he added.
In mid-afternoon trading, the euro was up some 0.2 percent at $1.2703 , having slipped to $1.2670 earlier in the session.
Bank of New York currency strategist Michael Woolfolk put a more positive spin on the housing data, noting both existing and new home sales in August were better than expected
"Yes, the July number was worse than we'd thought, but that could be marked as a one-off," he said.
But neither the housing data nor an August decline in new orders for durable goods such as computers and appliances knocked the euro out of its tight $1.2628-$1.2874 band that's held in September.
In the third quarter of 2006, which ends Sept. 30, the euro has been stuck in an only slightly broader $1.2456-$1.2939 range, never testing the year's $1.2979 high touched in early June.
"There's a real battle going on between the bulls and the bears, and the euro is at a standstill as a result," Schlossberg said.
YEN UNDER PRESSURE, MORE U.S. DATA DUE
The dollar fared better against the yen, up nearly 0.4 percent at 117.47 yen . Traders tied the move partly to the yen's failure to get a bigger boost from Japan's fiscal half-year end, which usually prompts Japanese investors to move money into domestic assets.
The euro was also up 0.5 percent at 149.19 yen , boosted after freshly appointed Japanese Finance Minister Koji Omi said he saw no need to act on the euro/yen exchange rate.
The euro hit a record high above 150 yen last month, prompting some European finance officials to complain about what they see as an undervalued Japanese currency.
Traders said upcoming U.S. economic reports, including a final read on second-quarter growth on Thursday and a key inflation report on Friday, may give the dollar more direction and provide more clues to investors about the future path of U.S. interest rates.
After 17 straight increases dating back to mid-2004, the Fed has held the benchmark fed funds rate targe steady at 5.25 percent since August, saying slower growth will cut inflation in the coming months.
A cut would erode the dollar's yield advantage over the euro and could spark additional euro gains in the months ahead, traders said.
The European Central Bank has signaled it will raise euro zone rates, now at 3 percent, in October to ward off inflation. Financial markets expect further hikes after that, too. (Additional reporting by Nick Olivari and John Parry in New York)
© Reuters 2006. All Rights Reserved.
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