Monday March 26, 2007 - 22:36:50 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar down as US new-home sales disappoint
FOREX-Dollar down as US new-home sales disappoint
Mon Mar 26, 2007 4:37pm ET18
(Updates prices, adds yen details)
NEW YORK, March 26 (Reuters) - The dollar fell against most major currencies on Monday after data showed U.S. sales of new homes for February dropped to the lowest rate since June 2000, boosting expectations of a Federal Reserve interest rate cut.
Monday's report offset a stronger-than-expected existing home sales report last Friday and reignited concerns that the slowing U.S. housing market has yet to stabilize.
"The data refocused markets on the housing market and that we will continue to see slippage in this market," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington D.C. "It's put the market back on course to looking at interest rate differentials."
Data showed that new single-family home sales fell to an annual rate of 848,000 units from a downwardly revised rate of 882,000 in January. This was the second straight monthly fall, while the volume of sales fell to its lowest in nearly seven years. For details, see [ID:nN23380399]
Late afternoon in New York, the euro rose 0.4 percent to $1.3328. Before the data, the dollar traded modestly higher, backed by the view that the Fed may have to hold interest rates unchanged for some time following data last week that showed a a surge in existing home sales in February.
Against the Swiss franc, the dollar dropped 0.3 percent to 1.2151 francs . Sterling rose 0.4 percent to $1.9690 .
Interest rate futures showed that perceived prospects for a Fed rate cut by June rose after the home sales report with investors seeing the chance of more aggressive cuts later in the year.
The Fed left its benchmark overnight federal funds rate steady at 5.25 percent last week, but removed a reference from its post-meeting statement to the possible need for "additional firming" of monetary policy.
Analysts said Monday's economic data was quite a turnaround from expectations earlier in the session that the worst of the housing market slowdown was over.
The data resurrected some fears that weakness in the subprime mortgage market could undermine the broader housing market and the economy as a whole.
"With the subprime problems not going away and actually looking like they are spilling over into other subprime lending areas like auto loans, people are looking for ghosts," said Joe Francomano, vice president of foreign exchange at Erste Bank in New York.
"When you get a number like this, it just confirms some of their worst suspicions," he added.
Market worries on housing persisted despite some assurance by a top Federal Reserve official on Monday. Speaking in Beijing on Monday, Chicago Fed President Michael Moskow said problems with high-risk mortgages were not spilling over to the rest of the U.S. housing market.
Traders, however, may be reluctant to move the dollar and other major currencies too much ahead of Fed Chairman Ben Bernanke's congressional testimony on Wednesday.
The dollar pared losses against the yen and last traded near flat at 118.08 yen .
Expectations for Japanese inflation data set for release on Thursday eroded some yen support, said Gary Deduke, foreign exchange analyst at FX Moneytrends.
The Japanese February core nationwide consumer price index is expected to decline 0.1 percent, according to a Reuters poll. (Additional reporting by David Mcmahon and Steven Johnson)
Â© Reuters 2007. All Rights Reserved.
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