The dollar fell to a two-year low against a basket of major currencies on Wednesday and came within a whisker of its record low against the euro after soft U.S. housing data kept a spotlight on slowing economic growth.
The greenback slipped after a report showed sales of U.S. new homes rose 2.6% in March but fell short of the pace expected by analysts. The news came a day after data showing the biggest monthly drop in sales of existing homes in 18 years, fueling expectations the Fed may soon cut interest rates.
The U.S. housing sector's weakness contrasts with healthier economic signs out of Europe, including a strong reading on business sentiment in the euro zone released earlier in the global trading day.
"A lot of this has to do with strength overseas so interest rates abroad are trending higher while ours have leveled off and are expected to go lower," which weighs on the dollar, said Jack Ablin, chief investment officer with Harris Private Bank in Chicago.
The dollar's decline pushed the euro to as high as $1.3667, near the currency's all-time peak at $1.3670, according to electronic platform EBS.
The spread of benchmark 10-year U.S. Treasury yields over euro zone paper with the same maturity stood at 45 basis points, the narrowest since November 2004. The primary reason for the dollar's 3% decline against the euro this year is the gradual disappearance of support provided to the dollar by higher U.S. Treasury yields.
"At the end of the day, this data is just weighing on interest rates, so key interest rate spreads continue to compress and that is going to weigh on the dollar near term," said David Mozina, foreign exchange strategist with Lehman Brothers in New York.
The dollar index declined on Wednesday for the 11th time in 12 sessions, showing the greenback's weakness has been widespread and prolonged. It was down 0.16% to a two-year low of 81.412, edging closer to psychological support at 80.00.
The dollar has weakened considerably in the past year, falling to 26-year lows against sterling and nearing record lows against the euro, mainly because of slowing U.S. economic growth at a time when other major economies are still showing signs of robustness.
The Federal Reserve's trade-weighted measure of the dollar against a basket of seven major currencies fell to a 12-year low on Tuesday.
"Overall, it looks like we're going to see a little more weakness in the dollar as the market prices in the potential for more aggressive Fed cuts," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto.
The Beige Book, the Fed's anecdotal look at the U.S. economy, released on Wednesday, said most regions showed only modest or moderate growth in recent months, with a decrease in home building and tepid demand for mortgages.
Against the yen, the dollar trimmed earlier gains and was close to unchanged on the day. One of the biggest movers on the day was the Canadian dollar, which rose to its highest since late September .