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Euro gains ground in wake of weak US housing data

The euro crossed US$1.47 on Friday amid persistent speculation that poor US economic data could force the Federal Reserve to cut interest rates next year, dealers said.

The dollar was also under pressure as traders reacted nervously to the assassination of Pakistani opposition leader Benazir Bhutto on Thursday, while activity was muted with many investors away for year-end holidays, dealers said.

The euro also hit new record highs against the pound, following a recent string of weak economic data in Britain.

The euro traded at US$1.4724 around 10pm GMT, up from US$1.4622 late on Thursday. Earlier it had climbed as high as US$1.4727.

The US dollar fell to £112.32 from £113.67 late on Thursday.

The murder of Bhutto on Thursday led to a sharp increase in risk aversion, boosting the Swiss franc and the yen.

"The events in Pakistan are clearly a significant crisis and have led to a substantial reassessment of risk in the market," said Simon Derrick at the Bank of New York Mellon.

Add to the mix Friday's weak US data on new home sales and Thursday's disappointing durable goods orders figures and it makes sense that the dollar has suffered as a result, Derrick said.

But he stressed that thin trading conditions ahead of the New Year's holiday on Tuesday were causing increased volatility and exaggerated price movements.

US government data released on Friday showed a 9 percent fall in sales of new homes in the US last month as a result of a lack of mortgage availability and consumer pessimism.

It was the slowest sales rate in more than 12 years and sharply exceeded market forecasts.

"The 9 percent month-on-month drop in US new home sales in November ... is a clear illustration that the housing market is still in full retreat and a long way from bottoming out," Paul Ashworth at Capital Economics said.

Concerns about the persistent US housing market crisis and its impact on the world's largest economy are expected to keep the dollar under pressure.

"Investors are looking for the US housing market to bottom out before they can conclude that the worst is over for the US economy and the Federal Reserve will be able to stop cutting interest rates," Derrick said.

Meanwhile, the pound was squeezed after Nationwide bank reported a 0.5 percent fall in house prices this month.

It marked the second consecutive monthly fall and added to the raft of evidence that the British housing market is slowing significantly, underscoring the likelihood of a Bank of England rate cut early next year.

In late New York trading, the greenback was at 1.1263 Swiss francs, down from SF1.1392 late on Thursday.

The pound was at US$1.9960, up from US$1.9954.

The euro was at £0.7375, up from £0.7326.
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