Dollar pared its losses after the positive U.S. new home sales data

Forex outlook:

The dollar pared its losses after a stronger-than-expected U.S. housing report suggested the sector was stabilizing, easing expectations for interest rates cut next year. Sales of new U.S. homes rose to an annual rate of 1.047 million last month from a revised 1.013 million in October, compared with the forecast of 1.018 million. Earlier on Wednesday, the dollar dropped the most in more than a week against the euro after the head of the United Arab Emirates central bank said it will convert some of its reserves of U.S. assets into the European currency. The dollar fell to $1.3124 per euro from $1.3098. The dollar has declined 9.7 percent versus the euro this year.
The yen also gained against the dollar and euro after a Jiji Press report suggested the BOJ will push interest rates higher at its January meeting. The U.S. currency declined to 118.74 yen from 119.15. The euro traded at 155.85 yen, from 156.04, after touching a record 156.43 on 21 Dec. Japan's economy is in a stable recovery and is likely to weather the slowdown in U.S. growth, BOJ Governor Toshihiko Fukui told Dow Jones Newswires in an interview on Wednesday.
Sterling is set for its biggest annual gain of 14 percent against the dollar since 1990 as it became the world's third-most popular reserve currency and the Bank of England lifted interest rates to their highest in five years. Now analysts are expecting the U.K. currency to reach $2, a level it last reached 14 years ago, after recent upbeat data fuelled expectations the Bank of England will raise its benchmark rate from 5 percent early in 2007.

Trading volume remained generally low ahead of the New Year’s holiday this weekend. As for today, investors are focusing on the U.S. existing home sales data, which makes up a larger portion of the housing market than new home sales, therefore is an important indicator of trends in the housing market.

Gold: Gold rose on Wednesday as a decline in the value of the dollar boosted the appeal of the metal as an alternative investment. The gold market was prone to wide fluctuations because of low trading volumes ahead of the New Year. Gold futures rose 0.5 percent to $630.30 an ounce, trading between $632 and $626.50. Gold has gained every year since 2001.

Crude Oil: Crude oil declined to a one-month low as mild weather in most of the U.S. reduced heating-fuel consumption. Crude oil fell 1.2 percent to $60.34 a barrel, the lowest close since 27 Nov. For the next indication of the state of U.S. fuel stocks, investors are looking to government inventory data to be released today, a day later than usual because of Monday’s Christmas holiday. Crude inventories are expected to fall by 1.8 million barrels following shipping disruptions caused by fog, while distillate stocks are expected to have risen by 400,000 barrels according to forecasts.

 
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