Dollar firms before US housing data

The dollar firmed against the euro and yen on Friday before publication of US home sales data that is expected to cement market expectations of further interest rate hikes in the United States.

The euro edged up to 1.1972 dollars in early European trading from 1.1966 dollars in New York late on Thursday.

The dollar gained to 118.26 yen from 117.88 on Thursday.

Traders were gearing up for the release later on Friday of data on new US home sales for February.

The US currency had won support overnight on data Thursday that sales of existing US homes had unexpectedly increased by 5.2 percent in February to a seasonally adjusted annualized rate of 6.91 million.

Additionally, the figure for January was revised up to 6.57 million from 6.56 million.

Thursday's figures, alongside strong data later Friday, will increase the likelihood that the US central bank will continue raising interest rates, dealers said.

"The dollar is trading close to recent highs just above the 118.00 (yen) level as general dollar sentiment remains underpinned by stronger than expected housing data," said Derek Halpenny, economist at The Bank of Tokyo-Mitsubishi in London.

In recent weeks, soft US economic data had prompted some players to scale back expectations of further US interest rate rises, putting pressure on the dollar.

However the home sales figures reignited speculation rate increases will continue as the US Federal Reserve prepares to meet next week on monetary policy for the first time with new chairman Ben Bernanke at the helm.

The market consensus is that the benchmark Fed funds rate will rise to 4.75 percent next week from the current 4.50 percent, with many also expecting the rate to rise to 5.00 percent by the year end.

The housing data stoked talk that US interest rates could rise even higher than 5.0 percent, said Sasaki at JPMorgan Chase.

"So the focus for the Fed meeting next week is on the wording of the accompanying statement for clues on the interest rate outlook," he said.

The euro was changing hands at 1.1972 dollars against 1.1966 late on Thursday, 141.55 yen (141.09), 0.6908 pounds (0.6900) and 1.5775 Swiss francs (1.5763).

The dollar stood at 118.26 yen (117.88) and 1.3175 Swiss francs (1.3171).

The pound was being traded at 1.7330 dollars (1.7340).

On the London Bullion Market, the price of an ounce of gold fell to 549.75 dollars per ounce, from 546.50 dollars on Thursday.

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Forex-Europe

AFP 241209 GMT 03 06

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