The dollar fell to an eight-week low against the euro on speculation a sluggish recovery in U.S. housing and labor markets will deter the Federal Reserve from raising interest rates.
The U.S. currency dropped to the lowest in two weeks versus the yen before reports today and tomorrow forecast to show housing starts fell and continuing jobless claims increased. It also fell after data yesterday revealed China’s overall holdings of U.S. government debt declined in November. The euro rose against 13 of its 16 most active counterparts after the region’s finance ministers made a commitment to increase the size of a bailout fund to tackle the debt crisis.
“The dollar is broadly under pressure from expectations that housing and employment are likely to remain weak, and from the data yesterday, which showed a decline in China’s holdings of U.S. assets,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London.
The dollar fell 0.6 percent to $1.3463 per euro as of 8:52 a.m. in London after reaching $1.3507, the lowest since Nov. 23. The U.S. currency declined 0.5 percent to 82.19 yen, after sliding to 82.02, the lowest since Jan. 5. The yen traded at 110.61 per euro from 110.52 yesterday in New York.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, dropped 0.4 percent to 78.625.
Housing Starts
U.S. housing starts declined 0.9 percent to a 550,000 annual rate last month, according to a Bloomberg survey before today’s Commerce Department report. The number of people continuing to receive jobless benefits rose to 3.99 million in the week ended Jan. 8 from 3.88 million the previous week, another survey showed before the data tomorrow.
The Federal Open Market Committee will keep interest rates unchanged at its next meeting on Jan. 25-26, according to all 87 economists surveyed by Bloomberg.
There’s a 60 percent chance U.S. policy makers will hold the benchmark where it is or lower it by December, according to futures on the Chicago Board of Trade. The probability was 40 percent a month ago. The rate has been at a range of zero to 0.25 percent since December 2008.
The yuan advanced to 6.5819 per dollar the strongest level since China unified official and market exchange rates at the end of 1993, before trading at 6.5825 from 6.5829 yesterday.
U.S. Treasury Secretary Timothy F. Geithner said China should understand that the currency’s level is a “big issue.” Speaking in a radio interview broadcast yesterday, Geithner said a stronger yuan is in China’s interest and a rising currency would help the nation manage inflation.