Sun, Sep 03, 2006 - Page 10 News List

Greenback falls on US housing concerns

WHIPSAWED The US currency gained early in Friday's session on positive US jobs news, but then shrank against the euro and yen on jitters over the property market


The US dollar lost steam against the euro in late trading on Friday on fresh concerns over the US housing market, after gaining earlier on a positive US job creation report.

The single European currency was at US$1.2827 at 2100 GMT, up slightly from US$1.2814 late on Thursday in New York. In the immediate aftermath of the US jobs announcement, the euro fell to US$1.2770.

The dollar fell to ¥116.93, against ¥117.37 on Thursday.

Late on, the greenback was hurt by a report from the National Association of Realtors revealing that pending US home sales fell by 7.0 percent in July to their lowest level in three years.

Its pending home sales index, based on contracts signed in July, fell to a seasonally adjusted 105.6 in July from a downward revised 113.5 in June.

Paul Ashworth, senior US economist at Capital Economics, said outright falls in house prices would appear to be unavoidable if this trend continues.

"Housing is in freefall and that is the key to the economic outlook," he said. "There are now clear downside risks to our longstanding forecast that GDP [gross domestic product] growth will slow to 2.0 percent next year," he added.

The housing market has been a driver behind the US growth spurt over the last couple of years, and any suggestion that it is in trouble stokes up concerns about the economic outlook.

But earlier on Friday, US dollar investors had been comforted by a solid US jobs report that allayed fears the country was experiencing a sharp slowdown.

The Labor Department said US employers added 128,000 jobs last month, up from a revised 121,000 in July and ahead of Wall Street's consensus forecast of 125,000 for last month.

The jobless rate dipped to 4.7 percent from 4.8 percent in July as more adults left the workforce, the department's non-farm payrolls report showed.

Analysts said the latest labor market snapshot was consistent with predictions of moderating but not collapsing economic growth and unchanged policy from the Federal Reserve.

The US central bank kept its key fed funds rate on hold on Aug. 8 at 5.25 percent, after 17 consecutive quarter-point increases.

Most analysts expect the European Central Bank, in contrast to the Fed, to lift borrowing costs both next month and in December.

They said the expected narrowing in yield differentials between the US and the eurozone had helped the euro push up toward the US$1.30 mark.

In his press conference on Thursday following the much-anticipated ECB decision to keep its benchmark rate at 3.00 percent, bank president Jean-Claude Trichet stressed that the ECB would maintain "strong vigilance" on inflation risks.

He reiterated his view that monetary policy in the 12-nation currency zone remains accommodative, despite the anticipated US growth slowdown.

Analysts said Trichet's assessment fit with the market view that eurozone rates will rise a quarter point both next month and in December to reach 3.50 percent.

At 2100 GMT, the pound bought US$1.9039 against US$1.9046 late on Thursday.

The US dollar was worth 1.2312 Swiss francs, from 1.2303.

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