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FX round-up: Home sales data buoys dollar

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Date: Tuesday 26 Feb 2008

LONDON (ShareCast) - Better than expected US home sales data and good news relating to the major US bond insurers saw investors rushing to buy the dollar on Monday.

US existing home sales data showed a 0.4% fall in January to an annualised 4.89m from a revised 4.91m in December. The January reading was the lowest level since 1999, when the National Association of Realtors started compiling the sales statistics. However, the fall was not as bad as feared, with most economists predicting a fall around the 1.8% level.

News that credit rating agency Standard & Poor’s (S&P) has elected not to downgrade the AAA ratings of the major bond insurers, MBIA and Ambac, renewed confidence in the US economy and the greenback made headway against most major currencies in New York in subdued trading.

“Carry trades” – where investors borrow in countries with low interest rates and invest in countries with higher yields – were back in fashion, to the detriment of the Japanese yen. The US dollar was buying just under 108 yen in late trading in New York, compared to 107.24 on Friday.

There was little change in the dollar’s value against the euro but sterling lost ground to the US currency, slipping 25 cents to $1.9665 in New York.

In London, sterling fell back in the wake of further gloomy house price data, though falls were limited by some good news on the mortgage approvals front.

House prices fell for the fifth month running in February according to online group Hometrack, though demand picked up slightly. Average prices fell by 0.2% during the month with the annual rate of growth slipping to 1.4%, the lowest level since April 2006. New buyer registrations showed their first improvement since last summer though the rate of improvement was well below this time last year.

Remortgaging helped boost the number of mortgages approved in January, according to fresh data from the British Bankers Association (BBA) released Monday.

The number of mortgages approved for house purchases hit 44,288 last month, better than the record low of 42,343 in December and more than the 40,000 analysts had expected.

The mortgage data steadied sterling against the euro, which drifted lower in London to 75.26p.

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