The US dollar rallied after U.S. existing home sales data showed sales rose more than expected in December. Existing home sales soared 12.3% to an annual rate of 5.28 million units, far surpassing forecasts for a rise to 4.85 million. Sales were down 2.9% compared to a year earlier. The dollar was able to hit 2 week highs against the majors on the back of this news.
Also contributing to the dollar's rise was stronger-than-expected U.S. labor market data. Initial jobless claims fell more than expected last week and showed their biggest decline since February.
High unemployment and a lackluster housing market are the biggest obstacles to the U.S. economy's recovery. The path of U.S. Federal Reserve monetary policy largely relies on labor market conditions, so signs of improvements tend to increase expectations of higher interest rates.
Analysts said risk appetite was tempered as investors waited to see how a visit by Chinese President Hu Jintao to the United States may affect Beijing's policy of holding down the value of the yuan.
The euro fell from yesterday's two month highs against the USD, due to strong data out of the U.S., though growing confidence in Europe's ability to defuse its debt crisis should cap dollar gains against the euro in coming weeks. Investors have grown more optimistic that EU officials could finally be working on a plan to address debt problems in the bloc's peripheral countries.
Officials are said to be mulling a solution that would allow the European Financial Stability Facility (EFSF) - the bloc's bailout fund - to directly purchase or help finance the purchase of government debt from troubled euro-zone nations.
The British pound weakened slightly against the USD and fell against the euro as a mixed UK industrial trends survey highlighted the dilemma facing the Bank of England policymakers.
The pound has been well supported since higher-than-forecast UK inflation data earlier in the week caused investors to bring forward expectations for when the BoE will hike rates, with a 25 basis point rise fully priced in for May. Rate hike speculation could help the sterling extend gains, possibly to $1.61 or $1.62 in the near term, but the pound's moves have been limited.
Investors will be looking to next week's release of the January BoE policy meeting minutes, which will give an indication of how concerned policymakers are about high inflation, as well as fourth quarter gross domestic product data.
The Japanese yen lost nearly 1% against the U.S. dollar after better than expected U.S. jobless claims data.
The Canadian dollar traded lower against the broadly stronger USD, dropping back below parity to its lowest level in more than two weeks, as riskier assets pulled back after stronger-than-expected Chinese growth data spurred fears of tighter monetary policy.
Chinese growth soared past forecasts to rise by 9.8% and inflation slowed less than expected in the fourth quarter, prompting a sell-off in global equities and commodities, such as oil, which hurt Canada's resource-linked currency.
The Australian and the New Zealand dollar reached a multi-week low against the USD as commodity prices plummeted. The kiwi was hurt by benign inflation data which led some investors to cut expectations of near term interest rate hikes.
Indications of Overnight rates:
10-Year Treasury Note Yield: 3.413%
Dow Jones Industrial Average: 11,786.05 - 39.24%
This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.