The dollar fell closer to a record low versus the euro on Thursday after a report showed an unexpected fall in September durable good orders, bolstering the view a slowing U.S. economy will prompt a cut in U.S. interest rates next week.
Investors will now look to U.S. new home sales for September to help gauge the extent of the crumbling housing market and the impact of tighter credit conditions.
The headline (durable orders) number is a bit disappointing, said Nick Bennenbroek, head currency strategist at Wells Fargo Bank in New York. On the other hand, we have housing numbers still coming out today and the markets seem more sensitive to that.
The euro gained 0.5 percent to $1.4330, less than half a cent off Monday's all-time highs. Dollar/yen was last down 0.1 percent at 114.07, well of the day's high of 114.57 yen.
Sentiment toward the U.S. economy soured further on Wednesday after Merrill Lynch & Co. became the latest Wall Street firm to report poor quarterly earnings as a result of problems in credit markets and existing home sales fell to a record low in September.
This cemented expectations the Federal Reserve will cut its fed funds rate next week.
U.S. short-term interest rate futures show investors have fully priced in the Fed cutting rates by 25 basis points from 4.75 percent at its policy meeting on Tuesday and Wednesday.
Versus a basket of six major currencies the dollar lost 0.4 percent to 77.233, moving towards a record trough of 77.093.
New home sales data at 10 a.m. are expected to show another fall in September.
If new home sales come in below consensus this would, in our view, lead to a stronger market reaction due to the current negative dollar sentiment -- a weak reading would further fuel rate cut expectations for next week, Commerzbank Corporates & Markets said in a research note, forecasting that euro could re-test record highs against the dollar before the weekend.
(Additional reporting by Vivianne Rodrigues in New York and Toni Vorobyova in London)