New home sales and the US dollar

The dollar rose the most against the euro this month as new-homes sales unexpectedly rose last month, boosting speculation Federal Reserve Chair Janet Yellen will reiterate the central bank’s plan to continue to cut bond-buying when she testifies before a Senate panel tomorrow.

The U.S. currency strengthened vs. most of its 16 major peers as the housing reports comes at a time when a harsh winter has weighed on economic-growth early this year. South Africa’s rand fell from a six-week high after Finance Minister Pravin Gordhan lowered the economic growth outlook. China’s yuan pared losses after reaching the weakest level since July as the People’s Bank of China cut the reference rate.

“The dollar’s going to be more sensitive to upside surprises than downside, the risk reward is for the dollar to rally,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “The underlying growth in the U.S. is still there. The slowdown in data is just temporary.”

The dollar rose 0.5 percent to $1.3673 per euro at 1:59 p.m. in New York, the biggest advance this month, and climbed 0.3 percent to 102.56 yen. The Japanese currency gained 0.2 percent to 140.21 per euro.

Dollar Measure

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 0.4 percent to 1,023.40. Treasury 10-year note yields touched a one-week low amid as demand for safer assets rose as Russia ordered military tests amid turmoil in Ukraine.

South Africa’s Treasury forecast that the economy will grow 2.7 percent this year from an October estimate of 3 percent. Gross government debt will probably increase to 48.3 percent of gross domestic product in three years’ time from 45.8 percent this year, risking further credit-rating downgrades if growth weakens. The Reserve Bank last month unexpectedly raised its key interest rate for the first time in more than five years.

“The lower growth forecast for this year and the tighter fiscals imply that more of the burden for growth stimulation will fall on the central bank,” Abbas Ameli-Renani, a London- based emerging-markets strategist at Royal Bank of Scotland Plc, said in an e-mail. “This supports our view that another rate hike in March is unlikely as things stand.”

The rand retreated 1 percent to 10.8318 per dollar after advancing as much as 0.4 percent.

Peso Falls

Mexico’s peso fell 0.7 percent to 13.3238 per dollar, the first decline in five days, as a surprise trade deficit in January stoked concern that the recovery in Latin America’s second-largest economy is faltering.

The yuan was at 6.1248 per dollar after depreciating to 6.1351, the weakest since July 30, according to China Foreign Exchange Trade System prices.

The People’s Bank of China cut the yuan’s fixing by 0.01 percent to 6.1192 per dollar, the weakest since Dec. 20. The spot rate was 0.08 percent lower than the fixing, after the two converged yesterday for the first time since September 2012. It can diverge by a maximum 1 percent from the fixing.

Two-way capital flows will become the “new norm” for China and the exchange rate is likely to be more volatile as U.S. stimulus is pared, the State Administration of Foreign Exchange said in a report yesterday.

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