The Wall Street Journal-20080129-Dollar vs- Euro- No Contest- Soft Housing Data- Bets on Rate Cuts Again Hit the Buck

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Dollar vs. Euro: No Contest; Soft Housing Data, Bets on Rate Cuts Again Hit the Buck

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The dollar was taken lower against the euro by familiar foes -- weak U.S. housing data and expectations of lower interest rates by the Federal Reserve.

The U.S. currency was under pressure as soon as the New York session began as investors priced in firm expectations the Federal Open Market Committee will cut its benchmark rate by at least a quarter percentage point at the end of a two-day meeting that starts today.

The problems grew worse for the greenback when a report showed new- home sales tumbled to the lowest mark in 12 years during December and prices for the houses also fell sharply.

Sales of single-family homes decreased by 4.7% last month, the Commerce Department said, while November's dismal numbers were revised down even further.

"Whichever way we slice this data, it is exceptionally poor . . . [and] the dollar tone was negative going into the data," said Alan Ruskin, head of international currency in North America for RBS Greenwich Capital.

The report persuaded markets to bump up odds the Fed may even cut rates by a half percentage point as it struggles to pump more life into an economy with rising unemployment, a weak manufacturing sector and softer consumer spending.

On the heels of the housing report, the euro climbed to as high as $1.4798 against the dollar, its highest intraday level in eight sessions.

Yesterday afternoon in New York, the euro was at $1.4784 from $1.4672 late Friday, while the dollar was at 106.86 yen from 106.83 yen. The euro was at 157.97 yen from 156.93 yen. The British pound was at $1.9836 from $1.9817, according to EBS, while the dollar was at 1.0892 Swiss francs from 1.0973 Swiss francs late Friday.

The euro's upward momentum stalled at a tough resistance level near $1.4800. Analysts said this suggests investors didn't want to oversell the dollar so early in the week, ahead of the FOMC rate decision tomorrow and a U.S. jobs report on Friday. "This week will be key in assessing the severity of the U.S. slowdown and the response from U.S. authorities," said Chris Turner, currency strategist at ING Wholesale Banking in London.

The hopes for aggressive Fed rate cuts gave a big boost to U.S. stock markets, which pushed the yen lower against its main rivals. U.S. stock markets cheered the firmer expectations of larger rate cuts on the assumption lower rates will translate into easier access to credit for companies, and thus more opportunity for growth.

The higher stock prices boosted risk appetite, giving currency investors confidence to sell the low-yielding yen in favor of riskier bets on currencies that pay a higher return.