The dollar fell versus a basket of currencies on Tuesday after an unexpected jump in US pending home sales and fresh stimulative measures by central banks world-wide eroded safe-haven flows into the greenback. The currency market continued to take its cue from equity trading.
US stocks extended their advance in afternoon trading, boosting risk sentiment and easing demand for the dollar and the yen, which are seen as safer places to park money in times of stress. "I'm seeing a stabilisation in the equity markets and it has to do with the much better-than-expected pending home sales," said Andrew Busch, global FX strategist at BMO Capital Markets in Chicago. "This is consistent with what we saw with existing home sales and it comes on the heels of a better-than-expected ISM manufacturing number yesterday."
"If we have a stabilisation in the equity markets, then the fear that caused people to buy US dollars as a safe-haven goes away." In late trading in New York, the ICE Futures US dollar index, which tracks the value of the greenback against a basket of currencies fell 1.4 percent to 84.872.
US stock indexes also got a lift, pressuring the dollar after news that a group of Republican senators offered a $445 billion alternative plan to boost the economy. An announcement by the Bank of Japan of a plan to buy up to 1 trillion yen ($11 billion) in listed shares held by Japanese banks and a deep interest rate cut in Australia also helped boost sentiment earlier, analysts said.
The euro was last up 1.5 percent versus the dollar at $1.3038, after rising as high as $1.3056, according to Reuters data. The dollar fell 0.2 percent to 89.29 yen. "Euro/dollar has been trading on the back of risk aversion and sentiment in the past couple of days. Any news that brings risk aversion lower and helps lift stocks at this point will hurt the dollar," said Matt Esteve, a foreign exchange trader at Tempus Consulting in Washington. Esteve said the euro could trade as high as $1.3250 in coming weeks.
Pending sales of existing US homes rebounded in December as buyers took advantage of lower prices and mortgage interest rates. The National Association of Realtors Pending Home Sales Index surged 6.3 percent in December. The housing report "is a real shot in the arm for (risk) sentiment," said Brian Dolan, chief currency strategist at Forex.com, in Bedminster, New Jersey.
"In an otherwise bleak landscape, this represents a ray of hope." But gains in the euro were limited as many in the market stayed sidelined before the European Central Bank's rate decision on Thursday when it is widely expected to leave interest rates on hold at 2 percent.
Figures on Tuesday showed euro zone producer prices fell a bigger-than-expected 1.3 percent, while German retail sales unexpectedly fell for a third straight month in December. Lingering concerns also remain about the fiscal health of economies on the fringes of the euro zone.
In other trading, the Australian dollar soared after the Reserve Bank of Australia cut interest rates by 100 basis points to a record low 3.25 percent. The Australian government also unveiled a $26.5 billion second stimulus package on Tuesday. The Australian dollar rose by 3.4 percent against its US counterpart to $0.6528. An improvement in risk sentiment also helped lift the higher-yielding New Zealand dollar, which rose 1.8 percent to $0.5137.
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