Dollar slides on weak housing data

The dollar had its biggest decline against the yen in almost two weeks, after U.S. housing data underscored the need for Federal Reserve support even as the central bank considers reducing its economic stimulus.

The U.S. currency was 0.2 percent away from its weakest in a month versus the euro before data on home prices, following figures that showed residential sales fell. Fed Chairman Ben S. Bernanke told Congress last week that any reduction in stimulus would depend on the performance of the economy.

Demand for the euro was supported ahead of data today forecast to show services and factory output in the region contracted at the slowest pace in more than a year.

“Bullish dollar bets are being adjusted after the Fed emphasized the timing of tapering is data dependent, and it’s in no hurry to raise interest rates,” said Yuki Sakasai, a foreign-exchange strategist at Barclays in New York. “Weak housing data spurred dollar selling.”

The dollar fell 0.2 percent to 99.6 yen yesterday in Tokyo after losing 1 percent on Monday, the biggest decline since July 10.

It slipped 0.1 percent to $1.3205 per euro after touching $1.3218 Monday, the weakest since June 21. The yen was little changed at 131.38 per euro.

Home prices in the U.S. probably rose 0.8 percent in May, following a 0.7 percent advance the previous month, the Federal Housing Finance Agency will report today, according to economists in a Bloomberg News survey.

Previously owned home sales in the U.S. fell in June amid tight supply and increasing mortgage rates. Purchases slid 1.2 percent to a 5.08 million annualized rate, the National Association of Realtors reported. The median forecast in a Bloomberg survey was for a 5.26 million pace.

Bernanke said last week in two days of congressional testimony that the Fed’s bond purchases “are by no means on a preset course” and may be reduced more quickly or expanded as economic conditions warrant. The Fed buys $85 billion of debt each month as part of its quantitative-easing stimulus to cap borrowing costs, a program that tends to debase the dollar.

It has held the benchmark interest-rate target unchanged at between zero and 0.25 percent since 2008 to support the economy.

The U.S. currency climbed last month after the Fed chief said the purchases may slow this year and stop in mid-2014 if economic growth meets policy makers’ projections.

Half of the economists surveyed say the Fed will begin trimming bond purchases in September, up from 44 percent in last month’s poll.

Investors see 41 percent odds that U.S. policy makers will raise the federal funds rate to 0.5 percent or higher by the end of 2014, compared with 49 percent odds a week ago.

Bloomberg