Dollar Index Hits 5-1/2 Month High after Home Data

The dollar index rose to a 5-1/2-month high Thursday after a surprise rise in the U.S. pending home sales index for June.

The dollar index climbed to 74.477, the highest since last February. The euro fell against the dollar after the housing data.

The pending home sales index rose 5.3 percent in June, compared with expectations of a 1.0 percent fall.

Meanwhile, U.S. jobless claims rose in the latest week, suggesting the economy's labor market woes are far from over.


The dollar made gains against the euro after European Central Bank President Jean-Claude Trichet said he expects economic growth in the euro zone to weaken substantially this year, even as he sees inflation remaining above the bank's target.

Following his remarks, investors unwound bets for ECB interest rates increases this year, limiting the euro's appeal to global investors.

But the dollar's gains versus the euro in the wake of Trichet's statements failed to stem the greenback's losses against the yen .

"The dollar really fell after the jobless claims which suggests that labor market is still weak. The labor market lags the business cycle and we all know that business was weak, so I'm not surprised that we saw a rise in jobless claims," said Ken Landon, a currency strategist, at JP Morgan Chase in New York.

In remarks after the ECB held rates steady at 4.25 percent, Trichet said the latest economic data suggested that real growth for mid-2008 will be substantially weaker than in the first quarter.

"These are some of the most dovish comments from Trichet I believe we have seen for quite sometime, so the market jumping all over them does not surprise," said Dustin Reid, senior currency strategist at ABN Amro in Chicago.

Figures derived from Eonia rates show the market has wiped out expectations of further ECB rate hikes this year.

In contrast, Fed fund futures are currently pricing in three 25 basis point U.S. rate increases over the next 12 months