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Dollar Rises on U.S. Home Sales as Volatility Falls to Record

June 24 (Bloomberg) -- Bloomberg’s Michael Mckee reports that new home sales jumped beyond expectations to an 18.6 percent gain in the month of May. He speaks on “Market Makers.”

The dollar ended the longest streak of losses since April after sales of U.S. homes rose by the most in 22 years, adding to signs of recovery from a harsh winter.

Price swings in the U.S. currency versus the yen, as measured by options, fell to a record low before a report this week forecast to show the economy contracted more than earlier estimated. The pound weakened after Bank of England Governor Mark Carney damped speculation of a rate rise. Russia’s ruble rallied to the strongest level since January.

“We did see a stronger dollar this morning, especially in the wake of the positive consumer-confidence and housing data,” said Omer Esiner, chief market analyst in Washington D.C. at Commonwealth Foreign Exchange Inc., a currency brokerage. “We’ve kind of traded sideways a little bit. It’s largely technical, but there’s some geopolitical headlines that may be weighing on risk appetite.”

The Bloomberg Dollar Spot index added 0.1 percent to 1,009.97 as of 5 p.m. in New York, its first daily increase in five days.

The greenback was little changed at $1.3606 per euro. The 18-nation common currency was at 138.74 yen from 138.67 yesterday. The dollar gained less than 0.1 percent to 101.97 yen, having declined 1.2 percent since March 31.

Price Swings

Three-month implied volatility in dollar-yen was at 5.76 percent after declining to 5.715 percent, the lowest level since Bloomberg began compiling the data in December 1995.

“Expectations for tapering haven’t played themselves out like we expected them to do, and the other force the other way is a yield play, the carry trade,” said Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank Ltd. “Those two counteract and consequently dollar-yen doesn’t do too much.” Carry trades allow investors to profit from differences in interest rates.

South Korea’s won and the Canadian dollar have been the best performers versus the greenback of 16 major peers this quarter, adding 4.6 percent and 2.8 percent respectively. Sweden’s and Norway’s currencies lost the most against the dollar, declining 3.8 percent and 2 percent since March 31.

The Norwegian krone has declined the most this month while the New Zealand dollar is the biggest gainer, advancing 2.1 percent. The ruble added the most versus the dollar of 24 emerging-market currencies this month, rising 3.3 percent.

Russia, Ukraine

Russia’s currency added 0.9 percent to 39.2996 today against the central bank’s dollar-euro basket, used to smooth currency fluctuations that can hurt exporters.

Pro-Russian separatists in eastern Ukraine called a cease-fire in fighting against government forces that’s left hundreds dead, matching a truce announced three days earlier by President Petro Poroshenko. Russian companies pay mineral extraction and profit taxes this week and next, prompting exporters convert their earnings and boosting the ruble.

New home sales in the U.S. increased 18.6 percent in May, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed. The reading exceeded all forecasts in a Bloomberg survey of 74 economists and was the strongest since May 2008.

Consumer confidence rose this month to the highest level in more than six years, according to a separate report.

“The data on new-home sales was pretty good, so that’s probably drawing the dollar a little bit higher,” said Sebastien Galy, a senior currency strategist at Societe Generale SA in New York.

Yellen View

Federal Reserve Chair Janet Yellen pinpointed banks’ reluctance to lend as one of the causes of a slow housing recovery when she spoke following the central bank’s meeting last week. Yellen flagged housing as a risk to the growth outlook in testimony to Congress in May.

Gross domestic product shrank 1.8 percent in the first quarter, more than the previous reading of a 1 percent contraction on May 29, according to a separate survey before the data are released tomorrow.

The dollar has weakened 1.3 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen strengthened 1.3 percent, while the euro declined 1.8 percent.

The pound dropped against most of its 31 major peers after Carney told a hearing of Parliament’s Treasury Committee on the central bank’s May Inflation Report that recent wage data has been softer than the BOE anticipated and that there’s scope to absorb more slack before rates can increase.

Sterling fell 0.2 percent to $1.6986, after rising to $1.7063 last week, its strongest level since October 2008.

To contact the reporter on this story: Rachel Evans in New York at revans43@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Paul Cox, Kenneth Pringle

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