Euro rallies on U.S. housing data | South Salem NY Real Estate

* Euro rallies but outlook clouded by political risks * Dutch auction sees reasonable demand * Two-day FOMC meeting to start later Tuesday NEW YORK, April 24 (Reuters) - The euro rallied against the dollar on Tuesday after two U.S. housing reports raised optimism about the U.S. economic recovery and in turn stoked risked tolerance against the backdrop of a two-day policy meeting at the U.S. central bank. The euro was already bid after a debt sale in the Netherlands saw demand from investors a day after the Dutch government's collapse in a crisis over budget cuts. As institutional investors stepped in to buy the euro after the U.S. data, others who had bet against the European currency reversed positions. The move higher then fed on itself. A closely watched survey showed U.S. home prices rose for the first time in 10 months, in an encouraging sign the battered sector is starting to stabilize. A separate report showed U.S. single-family home sales dropped in March to their lowest level in four months, but the reading still beat analysts' expectations and the government said sales in prior months were higher than initially thought. . "We're really seeing the euro gain a footing," said David Song, currency analyst at DailyFX. "Market participants are taking on more risk on the positive housing data." The euro was last 0.3 percent higher at $1.3194 after climbing as high as $1.3218, according to Reuters data. The currency, however, remains in the range of roughly between $1.30 and $1.33 it has kept since early April. Traders reported a slew of offers to sell the euro at $1.3230 which could cap further gains. DailyFX's Song cautioned investors should expect volatility ahead of the U.S. Federal Reserve policy statement to be released on Wednesday. The Fed will begin its two-day meeting later on Tuesday. While a high bar has been set for another round of stimulus, the market will nonetheless be keeping a close watch on policy makers given the still fragile U.S. economic recovery. And despite the good news in the U.S. housing market, investors remained clearly focused on problems in Europe. "The most closely watched event was the Dutch auction following the recent political developments in the Netherlands," said Mark McCormick, G-10 currency strategist at Brown Brothers Harriman in New York. "The total of 2 billion euros sold falls short the maximum target of 2.5 billion euros but yields in the secondary market are down." The Netherlands, one of the euro zone's few remaining AAA-rated economies, sold 1.995 billion euros of two- and 25-year government bonds, roughly in the middle of its target range. The previous day, Prime Minister Mark Rutte resigned following a dispute with the populist Freedom Party over spending cuts needed to meet European Union budget limits. MOODY'S Ratings agency Moody's said the collapse of the Dutch government after failing to agree on austerity cuts was credit-negative, although it maintained the country's triple-A rating. Last week, Fitch warned it was on the verge of taking negative action on the rating. The failure of the Dutch government could also add another complicating factor for the euro zone as a whole. "Another implication of the collapse of the Dutch government is that it could create some difficulties in ratifying the euro zone Fiscal Compact," said Brown Brothers Harriman's McCormick. Many investors also showed concern about events in France where Socialist Francois Hollande - who has promised to renegotiate a European budget pact - won the first round of France's presidential poll on Sunday. The second round of the French presidential election is on May 6, the same day that Greece elects a new government, while Ireland faces a referendum on the European Union fiscal compact later in May. "As we move into May and June we could see further volatility and turmoil," said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi in London. RBA WATCH The Australian dollar hit a two-week low against the U.S. dollar after soft inflation data fueled expectations of interest rate cuts by the Reserve Bank of Australia. The Aussie was down 0.1 percent at US$1.0306, but off the session low, on data showing Australian consumer prices climbed less than expected last quarter while underlying inflation posted the smallest rise in a decade. The safe-haven yen was broadly steady, trading close to flat against the U.S. dollar at 81.14 yen.

via reuters.com