The dollar dropped to record lows against the euro yesterday after a mixed batch of US economic reports provided no motivation to buy the currency.
A steep drop in November US new home sales pushed the dollar to fresh troughs versus the single euro-zone currency in partly technically driven trading, analysts said.
In late morning New York trade, the euro rose to a new high against the dollar at $1.3506 in thin pre-holiday trading. Traders said the market's attempt to take out options barriers around that level precipitated the euro's rise to record peaks.
The euro subsequently pared its gain to $1.3491, up 0.8 per cent.
Analysts said the euro had resumed its uptrend in European trading on a break of key technical levels rather than fundamental reasons, in a context of worries about the United States' ability to attract capital to cover its huge current account gap.
The single currency also rose to a one-year high against sterling at 70.40 pence.
The dollar has lost roughly 7 per cent against the euro so far in 2004 and more than 3 per cent against the yen and many analysts think it is on track to notch up a fourth consecutive calendar year of losses in 2005.
Traders largely ignored the final University of Michigan consumer sentiment report for December, which showed a reading of 97.1, up from November's final 92.8 and December's preliminary 95.7.
The Commerce Department said sales of new homes tumbled 12 per cent last month, following a revised 4.2 per cent increase in October. November's 12 per cent fall was the sharpest since a 23.8 per cent decline in January 1994.
The report also foreshadowed problems ahead for consumer spending. "Soft home sales have added a little more pressure on the dollar," said Mr Shaun Osborne, chief currency strategist at Scotia Capital in Toronto.
"If we see continued weakness in the housing market, that's probably going to weigh on the propensity to consume. Bear in mind that interest rates are starting to creep up in the US and are probably going to dampen spending a little bit more," he added.
Earlier, the dollar fell as traders focused on a surprise fall in US durable goods orders, excluding transportation, which had an exaggerated effect in a holiday-thinned market.
Overall new orders for long-lasting US-made goods rose a sharper-than-expected 1.6 per cent in November, after a revised 0.9 per cent decline in October.
Excluding transportation, durables orders fell 0.8 per cent after a 1.3 per cent October decrease, whereas Wall Street economists had forecast a rise of 0.9 per cent. - (Reuters)
