Reuters: US Dollar Report: FOREX-U.S. housing data, Dutch debt sale boost euro

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FOREX-U.S. housing data, Dutch debt sale boost euro Apr 24th 2012, 17:33 Tue Apr 24, 2012 1:33pm EDT * Euro rallies but outlook clouded by political risks * Dutch auction sees reasonable demand * U.S. housing data sparks modest hope, risk appetite By Steven C. Johnson NEW YORK, April 24 (Reuters) - The dollar slipped against the euro and most other major currencies on Tuesday after data suggesting U.S. home prices may be stabilizing emboldened investors to seek higher returns beyond U.S. borders. The euro was one of the strongest performers, getting an extra boost after the Netherlands saw solid demand at a debt auction a day after a budget dispute toppled the government. Against six major currencies, the dollar was down 0.3 percent, while the euro added 0.4 percent to $1.3204 . Traders said a pair of U.S. housing market reports stirred hope that a drawn-out decline in home prices may be nearing its end. The closely watched S&P/Case-Shiller index showed prices rose slightly for the first time in 10 months. "If we do see a lessening of downward momentum in housing, that's promising for U.S. consumer spending and ultimately for the global economy," said Karl Schamotta, senior strategist at Western Union Business Solutions in Calgary. "That will cause people to shift funds out of the low-yielding U.S. dollar and into foreign assets that offer higher yields," he said. The Federal Reserve is expected to reiterate its intent to keep benchmark U.S. interest rates near zero through 2014 when it ends a two-day policy meeting on Wednesday. The dollar shed 0.3 percent each against the Swiss franc and Canadian dollar but was unchanged against the yen at 81.14 yen. The Australian dollar hit a two-week low against the U.S. dollar after soft inflation data fueled expectations of interest rate cuts by the Reserve Bank of Australia. It was last off 0.4 percent at $1.0286. EURO GAINS MAY BE FLEETING The euro, while stronger, was still mired in a broad $1.30-$1.35 band that has prevailed for most of 2012. Steven Englander, global head of FX strategy at Citigroup, said data suggested sales of foreign assets by euro zone residents helped prop up the euro in late 2011 and early 2012, as did foreign buying of euro zone debt when yields stabilized. Such repatriation has helped keep the yen strong in recent years despite a weak Japanese economy. But Englander said counting on those trends to continue underpinning the euro is risky, noting that Europeans do not hold as many foreign assets as the Japanese do. "One would tend to think this would work for a while but not forever," he said. Brown Brothers Harriman strategist Mark McCormick said the collapse of the Dutch government could complicate European Union efforts to ratify a new fiscal compact designed to tighten budget rules and keep countries from falling into debt. The cause of crisis in the Netherlands - inability to agree on an austerity budget involving deep spending cuts - is also keeping investors from pushing the euro too high. "If Holland can't agree to tighten its belt, then it's going to be very difficult to keep up the momentum for cuts in the more troubled countries," Schamotta said. The Netherlands is one of the euro zone's few remaining AAA-rated economies. Ratings agency Moody's said it was sticking with that rating for now but added that the government's collapse was credit-negative.. Many investors also remained on edge as French Socialist Francois Hollande, who has promised to renegotiate a European budget pact, is in the lead heading into a May 6 run-off in France's presidential election. "As we move into May and June we could see further volatility and turmoil," said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi in London. Link this Share this Digg this Email Reprints

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