The dollar rose against the euro Thursday after data showed sales of new U.S. homes plunged by 14.7 percent last month, underscoring the depth of the U.S. recession and heightened fears for global growth.
According to the data from U.S. Census Bureau , new home sales were at an annual rate of 331,000 units in December, down 14.7% from November's pace and weaker than expected. For all of 2008, there were 482,000 new homes sold, down 38% from 2007.
The U.S. Labor Department said that jobless claims were up 3,000 last week to 588,000, more than expected.
At the same time the U.S. Commerce Department said that durable goods orders were down 2.6% in December, weaker than expected. For all of 2008, orders were down 5.7%, the second largest decline on record.
At the same time The Fed kept interest rates steady near zero and said it was prepared to buy long-term Treasury debt if that would help improve credit conditions.
Dollar investors fear the Fed's balance sheet will balloon further as it would need to essentially print more money to keep the economy afloat. By flooding the market with dollars, the currency's value could cheapen.
Moreover, the Fed's statement soothed the markets because it depicted a central bank that is pulling all the stops to lift the U.S. economy out of recession.
But at the beginning of the week a report from the Standard & Poor's/Case-Shiller index of home prices in 20 cities was down 18.2% in November from a year ago, roughly as expected.
The Conference Board's index of consumer confidence fell from 38.6 to 37.7 in January, weaker than expected. Richmond Federal Reserve's regional index of manufacturing improved from -55 to -49 in January, still a sign of contraction.
On Monday dollar fell against the euro, as investors' risk appetite improved after British bank Barclays said it would report a 2008 pretax profit and U.S. data showed a jump in home sales.
Shares in Barclays, one of the UK's biggest banks, soared more than 70 percent, driving a steep rally in other British bank shares too. Optimistic news about the banking sector was a welcome relief for the pound, which took a beating last week after record losses at Royal Bank of Scotland.
The dollar has been the main beneficiary of the economic downturn around the world. Investors have viewed the currency as a safe haven amid expectations the United States, the first major economy to hit recession, will be the first among industrialized countries to emerge out of the economic slump.
In spot, dollar closed at 1.2948 against the euro, after trading in the range of 1.3179– 1.2932
Weekly Outlook (DEUR March.)
More uptrend expected below 127.50. Resistances are 125.20, 125.85, and 121.60. Supports are at 129.40, 130.60, and 133.30.
Last day, DEUR MAR. traded in the range 131.59 – 129.33 and closed at 129.59
