The dollar traded near the 2009 low versus the euro as a surprisingly strong U.S. housing report suggested the recession has possibly ended, reducing demand for the dollar as a safe-haven asset. U.S. pending sales of previously owned U.S. homes rose at a faster-than-expected pace in June, advancing for the fifth straight month for the first time in six year. The National Association of Realtor said its pending home sales index rose 3.6% versus consensus expectations of 0.6% and pending sales were up 6.7% in June compared to the same period last year. In addition, this much better-than-expected pending homes sales data offset news that U.S. personal incomes tumbled 1.3% in June, more than forecast and the biggest drop in four years, signaling that consumer spending will take time to recover.
Euro staged a consolidation trading day on Tuesday after retreating from multi-months high of 1.4445 formed on Monday. Eurzone PPI came in at 0.3% compared to economists' forecasts of 0.2% and the market reaction to the data was somehow muted. The signal currency was little changed after trading as low as 1.4367 against the dollar in New York session.
The British pound extended gains in the aftermath of strong U.K. data and optimism about U.K. bank earnings from Monday and the pair hit a nine-month high at 1.7005 against the dollar on Tuesday Asian trade. In addition, U.K. construction PMI rose to 47.0 in July versus the expectation of 45.0 and well above 44.5 in June. However, the slid in European stock markets pulled sterling away from that level and fell to as low as 1.6888 against the greenback in New York morning. The Northern Rock 724.2 million pound loss report also weighted on the pound.
The greenback rebounded strongly from a ten-month low at 1.0632 to as high as 1.0767 against the Canadian dollar as Canada Finance Minister Jim Flaherty said that he is concerned about the currency’s rapid rise and said ‘steps’ could be take to damp the advance.
The Japanese yen strengthened against most of its major counterparts initially as Asian & European bourses were trading lower after recent rally, however, the yen fell broadly in New York morning with aud/jpy rebounding from 79.36 to 80.55/60, eur/jpy rose from 135.97 to 137.65/90 and gbp/jpy strengthened from 160.06 to 161.75/80. The dollar also rallied from 94.36 to 95.43/45.
Earlier in the day, the Reserve Bank of Australia kept interest rate unchanged at a record low 3.0% as widely expected. The RBA dropped scope for further monetary easing in the statement, supporting market views that Australia may see a rate hike within this year. However, profit-taking purpose weighed on the aussie dollar and aud/usd retreated from 10-month high of 0.8471 to as low as 0.8385 before recovering.
Data to be released on Wednesday include Australia trade balance, German, eurozone and U.K. service PMI, U.K. Halifax house prices, industrial production, manufacturing production, eurozone retail sales, U.S. ADP employment, factory order and ISM non-manufacturing.