Dollar rebounds at end of week amid Dubai debt crisis
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The dollar fell against major currencies during most sessions of the past week upon strong U.S. economic data before picking up on Friday as Dubai debt crisis hurt investors' risk appetite.
With risk sentiment remaining the main driving force in currency trading, the dollar tends to fall against the euro and other higher-yielding currencies on positive economic news, and to rise when investors worry about economic outlook.
Most U.S. economic reports released during the week were encouraging, reducing safety haven demand for the dollar.
Existing-home sales jumped to a seasonally adjusted annual rate of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, the National Association of realtors (NAR) reported on Monday. It was the highest reading since February 2007. Sales were up in all four regions, with three regions registered double digit increases. The inventory yardstick, the supply of existing homes at current sales rates, fell from 8.0 months to 7.0 months.
The surge of sales in October was driven by the first-time buyer tax credit, which had been set to expire on Nov. 30. The tax credit has been extended and expanded earlier this month. "Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," said NAR chief economist Lawrence Yun.
The Conference Board reported on Tuesday that its consumer confidence index rose to 49.5 in November from 48.7 in October. Consumers' appraisal of present-day conditions was virtually unchanged in November. Short-term outlook improved slightly, with the expectations index edged up by 1.5 points to 65.7.
The Standard & Poor's/Case-Shiller home price index, a closely watched measure of 20 metropolitan areas, increased for the fourth consecutive month by 0.3 percent on a seasonally adjusted basis in September. The index are up about 3.5 percent from their May low.
U.S. consumer spending rose 0.7 percent in October, the Commerce Departmnet reported on Wednesday. Real consumer spending after inflation increased 0.4 percent, partly reversing September's 0.7 percent decline.
The Commerce Department also reported that new home sales jumped 6.2 percent in October to a seasonally adjusted annualized rate of 430,000 units. The number of unsold new homes fell for the 30th consecutive month to its lowest level since May 1971. The inventory yardstick, the months' supply of new homes at current sales rates, fell from 7.4 to 6.7 months.
The Labor Department reported that initial claims for jobless benefits fell 35,000 to 466,000 last week, a 14-month low. The four-week average of jobless claims fell to the lowest level since November 2008. The decline of initial claims is a genuine improvement and not the result of one-time seasonal distortions, said analysts of Nomura Economics Research. It was expected that consensus forecasts for non-farm payrolls will shift higher.
The U.S. Federal Reserve released minutes on Tuesday for its latest monetary policy meeting held earlier in November. The minutes, showing that Fed policymakers expect the economy to expand at a slow rate while unemployment remains high, also helped to drive the dollar lower.
Fed officials thought the recent fall in the foreign exchange value of the dollar had been orderly. The central bank is expected to keep benchmark rates at ultra-low levels for an extended period.
The dollar rebounded significantly on Friday as investors cut exposure to risky assets and higher-yield currencies.
Dubai, part of the United Arab Emirates federation, asked on Wednesday to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel. Investors worried that the Dubai debt problems in the middle-east emirate would spill over to the world, hampering the global economic recovery.
Panic over the crisis eased in late Friday trading after major banks and world leaders played down Dubai debt threat. British Prime Minister Gordon Brown said the world financial system is stronger now and able to deal with the Dubai debt problems.
The dollar fell below 85 yen, touching a 14-year low during the session before bouncing back. Japanese Finance Minister Hirohisa Fujii said on Friday that he may contact U.S. and European officials to act on currencies.
The euro bought 1.4954 dollars in late Friday New York trading, about 0.7 percent higher than a week ago. The British pound was almost flat at 1.6479 dollars. The dollar fell 0.8 percent during the past week to 1.0623 Canadian dollars, and fell 1.1 percent to 1.0065 Swiss francs. It fell 2.5 percent to 86.70 Japanese yen.
