Reuters: US Dollar Report: FOREX-Euro climbs after U.S. housing report ups risk appetite

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FOREX-Euro climbs after U.S. housing report ups risk appetite Apr 26th 2012, 15:00 Thu Apr 26, 2012 11:00am EDT * Euro climbs, pending U.S. home sales raise risk appetite * Dollar seen subdued as Fed retains stimulus option * Yen investors eye BOJ policy meeting on Friday NEW YORK, April 26 (Reuters) - The euro rallied against the dollar in a volatile session o n T hursday, which saw the single currency swing from a three-week high to losses and back higher again after a U.S. housing report offered hopes of a pickup in housing and raising risk appetite. Contracts to purchase previously owned U.S. homes increased solidly to a near two-year high in March, suggesting the spring selling season got off to a firmer start. The report offset bearishness on the euro after a report showed euro zone economic sentiment fell more than expected in April, driven by more pessimistic industry and services sectors, as the economy sinks into recession.. "The pending home sales probably did play a hand in muting some of the negativity from high joblessness and low consumer confidence," said said Alexander Chepurko, foreign exchange analyst at Forex Club in New York. "But mostly it's a weakening U.S. dollar that's giving the euro/dollar help, after yesterday's Fed proclamation that they are prepared to take additional easing steps even in the face of slightly positive growth." The euro was last up 0.2 percent on the day at $1.3245, nearer to the earlier three-week peak of $1.3263 than the session low of $1.3197. U.S. initial weekly jobless claims showing a weaker pace of healing in the labor market sent the dollar to a one-week low against the yen and the euro to a session low against the dollar [ID:nOATQFE83K}. Following a two-day policy meeting that finished on Wednesday Federal Reserve Chairman Ben Bernanke said policymakers were ready to launch another round of bond buying if the U.S. economy weakened. The statement weighed broadly on the dollar, pushing it to the three-week low against the euro. "The main catalyst for volatility this week was FOMC," said Kathy Lien, director of FX research at GFT in Jersey City, New Jersey. "Bernanke's dovishness drove the euro/dollar to a fresh 3 week high but the pair has struggled to extend its gains since then." Peripheral bond yields rose and with the threat of political instability from elections in France, Greece and the Netherlands hanging over the euro zone, investors were keen to sell the common currency at higher levels. But the dollar struggled to push higher against most currencies following the Fed's statement. The U.S. central bank reiterated that interest rates were unlikely to rise before late 2014. "The fact (the Fed is ) still maintaining a very dovish stance and not taking any risks with the recovery process will help some of the higher beta currencies," said Ian Stannard, head of European FX strategy at Morgan Stanley in London. The Canadian dollar and the British pound hit seven-month highs against the U.S. currency, a s the central banks of Canada and Britain - in contrast to the Fed - are seen moving away from further stimulus. Sterling rose to a peak of $1.6206, according to Reuters data, while the U.S. dollar fell as low as C$0.9802. The Fed's bond-buying programme is negative for the dollar as it boosts supply of the currency. Fresh projections released by the Fed also showed that policymakers' support for a rate hike before 2014 had not increased from January, disappointing dollar bulls who had hoped for the possibility of an earlier exit from its loose monetary policy. With the Fed's dovish bias investors may instead fund positions in higher-yielding currencies by borrowing in dollars or yen, where rates are near zero and more stimulus is possible. The dollar eased 0.6 percent against the yen to 80.78 yen , in part because of the poor U.S. jobless claims number. "This was a disappointing number and offers more evidence that the labor market continues to lose traction," said Joe Manimbo, senior market analyst, Western Union Business Solutions in Washington. "For the dollar, this should add to the risk-off feel in the markets." The dollar stayed in a 80.30-81.80 yen range seen in the past few sessions ahead of the BOJ's policy meeting on Friday and the Japanese currency was seen as unlikely to make much headway ahead of the meeting. Sources familiar with the central bank's thinking said the BOJ is likely to ease monetary policy o n Friday by boosting asset purchases by up to 10 trillion yen. Some traders said investors are already bearish on the yen as further BOJ easing has been talked about for weeks, leaving room for the yen to rebound. Others said the BOJ is likely to stay under pressure to ease even after Friday's meeting. Link this Share this Digg this Email Reprints

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