Dollar little moved as US Housing starts drop
NEW YORK – The US dollar was little moved against other major world currencies Tuesday as a government report showed a decline in new home building, traders said.
The euro was swapping hands at 1.3426 dollars at 2100 GMT, little changed from 1.3414 dollars in New York late Monday.
The dollar had meanwhile was trading at 123.33 yen, down from 123.66 yen on Monday, but still simmering near multi-year highs against the Japanese currency.
Analysts said the dollar, however, was facing pressure from bond yields.
“The US dollar succumbed to softness in the session as treasury yields continued to move lower in New York,” said Kathy Lien at Forex Capital Markets.
After reaching a five-year high of 5.32 percent last week, 10-year US Treasury bond yields have fallen considerably following the release of a monthly government snapshot Friday which revealed lower than expected inflation.
Such yields can affect the dollar because of their affect on interest rates.
“With consumer price pressures slightly less than expected, considerations of a more stable economy and unchanged interest rates are fueling dollar bearishness at the moment, especially against the euro and British pound,” Lien said.
The dollar appeared to shrug off a government report Tuesday which revealed a downturn in new home construction, although the drop was in line with expectations.
The Commerce Department said housing starts in May fell by 2.1 percent to an annual rate of 1.474 million units, while building permits for new homes rose by 3.0 percent to 1.486 million.
Analysts said the US housing sector was likely to remain weak for some time to come.
“We expect this (housing) weakness will continue with high levels of inventory still available and news elsewhere in the economy meaning that interest rates are unlikely to be cut this year,” said Jonathan Said, a senior economist at the Center for Economic and Business Research.
The Federal Reserve has kept US interest rates pegged at 5.25 percent for a year, and most analysts are expecting the Fed to keep its short-term fed funds rate on hold at a policy meeting next week.
In the European market, market observers said they still expect the European Central Bank to hike its benchmark “refi” refinancing rate in September by a quarter of a percentage point from its current level of 4.0 percent.
In Britain the pound remained firm, having built up gains over the day ahead of Wednesday’s release of minutes from the Bank of England’s Monetary Policy Committee’s last rate setting meeting.
The market will be looking to see how the nine-member panel voted during its last meeting when the key repo rate was left unchanged at 5.50 percent.
In late New York trade, the dollar was quoted at 1.2404 Swiss francs from 1.2421 Monday.
The pound was being traded at 1.9886 dollars after 1.9832.