US Dollar Rallies on Home Sales, Bear Stearns Bid
The dollar rallied across the board Monday on better-than-expected U.S. existing home sales data and J.P. Morgan's higher offer for Bear Stearns shares, which boosted Wall Street stocks.
The U.S. currency rose for a fourth consecutive session in holiday-thinned trading and followed a series of aggressive measures undertaken by the Federal Reserve last week aimed at relieving the market's liquidity pressure.
"The housing sector and mortgages are at the center of problems in the financial sector. Any good news in housing at the margin would be very helpful at this point for the dollar," said Ken Landon, global currency strategist at JPMorgan Chase in New York.
Data Monday showed U.S. existing home sales rose 2.9 percent last month, although the 8.2 percent decline in median home prices to $195,000 was the sharpest drop since 1968.
In midday New York trading, the dollar rose to a session peak at 100.74 yen, the highest since March 14, and well off a nearly 13-year low of 95.77 yen posted last week. The pair trades up from last Friday.
The dollar index, a measure of the greenback's value against six major currencies, was up 0.4 percent at 73.039. It earlier rose 73.194, the highest since March 12.
News that JPMorgan Chase raised its offer for investment bank Bear Stearns to $10 per share from $2 previously improved sentiment on U.S. equity markets and the dollar.
At the same time, the New York Fed said it would provide $29 billion in term financing to facilitate JPMorgan's acquisition of Bear Stearns and will form a privately managed company to oversee assets pledged as collateral.
Less Stress on Financial Markets
"This news is certainly helping the equity markets and supporting the dollar because it is putting a little less stress on financial markets," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York.
"But one has to be cautious of extrapolating holiday trading moves into what's going to happen when all markets open. Although the JPMorgan news is clearly good news at least for the equity markets, there is still significant stress in the financial sector based on price action in the money market," he added.
In commodity trading, oilslipped, moving away from record highs hit last week. Oil's slide from lifetime peaks and the fall in other commodity prices helped the dollar regain its footing as investors unwound bets on those assets to take profits before the first quarter ends.
U.S. light crude for May delivery traded down 0.2 percent at $101.58 per barrel, while gold edged up to $924.60 an ounce, both having shed around 7.5 percent last week.
The euro slipped, down from a record high of $1.5905. Analysts said the pair could extend losses to $1.5280.
Against the Swiss franc, the dollar jumped 1.4 percent to 1.0237 francs, recovering from record lows at 0.9637 last week.
The euro zone currency's record peak versus the dollar last week came after the collapse of U.S. investment bank Bear Stearns But confidence in U.S. assets, including the dollar, was partially restored after the Fed unveiled steps to relieve the credit crisis.
It started lending directly to securities firms for the first time since the Great Depression and lowered the benchmark fed funds rate by 75 basis points to 2.25 percent.