Dollar drops as home sales, spending data weak

AP News
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Posted: Dec 23, 2009 5:50 PM

The dollar was mixed against major currencies Wednesday as new data on home sales and consumer spending reinforced the view that the U.S. economy's recovery will be bumpy and slow.

In late New York trading, the 16-nation euro rose to $1.4337 from $1.4254 late Tuesday. On Tuesday, the euro bottomed at $1.4219, its lowest point since Sept. 1, as a third credit ratings agency downgraded Greece's public debt. The British pound slipped to $1.5953 from $1.5967, while the dollar fell to 91.68 Japanese yen from 91.79 yen.

The government said personal incomes and spending both rose in November, but economists cautioned that the gains weren't enough to help output grow strongly.

The data "suggest that households are in no fit shape to drive a sustained period of strong consumption growth," said Paul Dales, U.S. economist at Capital Economics in Toronto.

Personal incomes rose 0.4 percent in November, while spending rose 0.5 percent.

Meanwhile, the Commerce Department also said that sales of new homes dropped 11 percent in November from the previous month, to the lowest level since April.

The plunge "seriously questions the pop in housing starts reported a week ago," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

Wednesday's data put a damper on the generally improving picture of the U.S. economy from retail sales and unemployment numbers earlier this month. The improved outlook has caused the dollar to gain in tandem with stocks in December, breaking a trading pattern in place for more than a year. Since Lehman Brothers collapsed, the dollar had tended to benefit as a "safe haven" buy, as investors took their money out of emerging markets and stocks and instead bought up the dollar and U.S. Treasurys.

Now investors are forecasting the Federal Reserve raises interest rates in the first half of 2010, sooner than traders had previously expected, as the recovery advances. Higher interest rates, and the expectation of higher rates, can boost a currency as investors transfer funds to where they can earn higher returns.

In other late trading Wednesday, the dollar fell to 1.0478 Canadian dollars from 1.0557 late Tuesday, and dropped to 1.0391 Swiss francs from 1.0481 francs.