Dollar drops versus euro

The dollar edged lower against the euro on Friday after a surprisingly weak report on existing home sales rekindled worries that a downturn in the US housing sector may have further room to run. Some analysts said the data showing sales of existing homes in April were at their lowest since June 2003 could help cut short a rebound in the dollar.
"We had a bit of weak (housing) data and it definitely spurred a little bit of push higher in the euro, but there wasn't enough momentum," said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto.
"We didn't get to $1.3480 (in euro/dollar) which is immediate resistance. I don't think the market is too keen to take it one way or the other and we will be settling in for the rest of the day," he added. Trading was light ahead of the Memorial day holiday weekend in the United States.
In mid-afternoon trading, the euro was up 0.2 percent at $1.3451, well above a six-week low of $1.3411 hit earlier in the session on electronic trading system EBS. The dollar was up 0.3 percent at 121.70 yen, nearing Wednesday's three-month high of 121.88. It was the fifth straight week of declines for the yen, the longest since a 6-week losing streak in September-October 2005.
The yen had fallen earlier in the session as investors piled back into carry trades after cutting some risky positions overnight. Political concerns also took their toll on the yen after a report from Japan's Kyodo news agency saying North Korea had fired several short-range missiles into the Sea of Japan.
Against the Swiss franc, the dollar was nearly flat at 1.2277 francs. After the existing home sales data, rate futures were reflecting a 60 percent chance that the Fed will lower rates by a quarter-percentage point by the end of 2007, above a low of 42 percent on Thursday. But that was still in stark contrast to early this year when more than one rate cut was priced in.
"This number (US existing home sales) wasn't disappointing enough to get people thinking again that the Fed may cut after all," said David Watt, senior currency strategist at RBC Capital Markets in Toronto. "We'll have to wait until next week to assess the Fed outlook and the situation for the US dollar."
The Canadian dollar, meanwhile, jumped to a fresh 29-1/2 year high against the greenback, piercing C$1.0800, due to higher oil prices and expectations for a hawkish statement from the Bank of Canada next week. By mid-afternoon, the US dollar was at C$1.0793, down about 0.4 percent on the day.
Next week, markets will be looking at a slew of US economic data, led by the all-important nonfarm payrolls report for May. The jobs data will be released on Friday. The reports could shed more light on where the US economy and interest rates are headed.
The US economy has shown some signs of life after a fairly low payroll number in April. Analysts will be looking for some recovery in employment this month. The consensus forecast is for new jobs of 130,000, according to a Reuters poll.