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Dollar Falls as Surprise Housing Gain Fuels Appetite for Risk

The dollar fell against most of its major counterparts after U.S. pending home sales unexpectedly rose in October and stocks and commodities gained, fueling investor appetite for riskier assets.

The euro slid earlier versus the dollar after European Central Bank President Jean-Claude Trichet refrained from announcing new measures to curb Europe’s sovereign-debt crisis. Trichet signaled policy makers will delay withdrawal of stimulus measures and said the bank will keep buying government bonds.

“When we got home sales, we realized the market really isn’t doing that badly,” said Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo, New York. “If the U.S. is going to be an economy that leads us out of the recession, the sideways movement the world economy is in, the housing market has to balloon back up.”

The dollar depreciated 0.5 percent to $1.3209 per euro at 5 p.m. in New York, from $1.3139 yesterday, after weakening as much as 0.8 percent. It touched $1.2969 on Nov. 30, the strongest level since Sept. 15. The greenback weakened 0.4 percent to 83.82 yen, from 84.19 yen. The euro rose 0.1 percent to 110.72 yen, from 110.58 yesterday.

Commodity-linked currencies gained, with the South African rand reaching a three-week high against the greenback.

The Standard & Poor’s 500 Index climbed 1.3 percent after a report showed more Americans unexpectedly signed contracts to purchase previously owned homes in October, easing concern that the absence of government support is hurting the housing market.

Pending home resales jumped a record 10 percent after dropping 1.8 percent in September, National Association of Realtors data showed today. The median forecast in a Bloomberg News survey called for a 1 percent decrease.

Trichet Disappoints

The euro weakened earlier after Trichet failed to announce fresh steps to curb the debt crisis, including more purchases of government bonds to try to restore normal functioning of the region’s debt markets. The bank held its key interest rate at 1 percent, as forecast in a Bloomberg News survey.

“Some people were hoping for some clear expansion of the bond-buying program,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “There was nothing new -- that is a disappointment.”

The ECB met today under pressure from investors to stop the debt crisis from engulfing Spain, the euro-area’s fourth largest economy, after the Irish rescue four days ago failed to persuade markets policy makers have the resolve needed to contain it.

‘Status-Quo Announcement’

“The status-quo announcement from the ECB suggests that there will be continued high risk of contagion of the debt crisis,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “He fell very short of the increase of bond purchases that the market was hoping for. The risk is still to the downside for the euro.”

The South African currency touched the strongest level since Nov. 11 against the dollar. The rand was the best performer versus all of its 16 most-traded counterparts, surging as much as 2.2 percent to 6.8678 per dollar.

The Reuters-Jefferies CRB Index of raw materials rose for a second day, increasing 1 percent.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, fell for a second day. It declined 0.6 percent to 80.214.

Yuan Bet

Investors should bet the dollar will fall against China’s currency through two-year non-deliverable forwards, according to Goldman Sachs Group Inc. Pressures from external imbalances will force China to allow the yuan to rise, economists led by Dominic Wilson in New York wrote in a report yesterday. Investors should expect a 6 percent return, according to the report.

The Chinese government has allowed the currency to appreciate 2.5 percent to 6.6613 since the two-year peg to the dollar was relaxed in June.

Goldman revised its 2011 currency forecasts today, lowering projections for the euro and yen against the dollar, according to Thomas Stolper, an economist at the firm in London. The bank now expects the euro to trade at $1.50 at the end of next year, compared with $1.55. The yen will reach 90 per dollar, versus a previous estimate of 85.

Growth-linked currencies including the Canadian dollar also rose before data tomorrow that will show U.S. employers added 150,000 jobs last month, according the median forecast of 87 economists in a Bloomberg survey. A gain of 151,000 jobs in October was the biggest gain since May.

‘Additional Clarity’

The market “will be treading water until we can get some additional clarity from the report tomorrow,” Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, said.

The Canadian currency advanced 1.4 percent to C$1.0030 per U.S. dollar in the second-best performance versus the greenback.

The pound was the worst performer against all of its major peers, falling from yesterday’s 10-week high against the euro as U.K. government bonds dropped after Trichet said the ECB will keep offering banks unlimited loans through the first quarter.

Sterling weakened 0.7 percent to 84.72 pence per euro, after touching 83.35 pence yesterday, the strongest since Sept. 20. It fell 0.1 percent to $1.5604.

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