* Euro rallies but outlook clouded by political risks
* Dutch auction sees reasonable demand
* U.S. housing data sparks modest hope, risk appetite
By Steven C. Johnson
NEW YORK, April 24 (Reuters) – The dollar slipped against
the euro and most other major currencies on Tuesday after data
suggesting U.S. home prices may be stabilizing emboldened
investors to seek higher returns beyond U.S. borders.
The euro was one of the strongest performers, getting an
extra boost after the Netherlands saw solid demand at a debt
auction a day after a budget dispute toppled the government.
Against six major currencies, the dollar was down 0.3
percent, while the euro added 0.4 percent to $1.3204
.
Traders said a pair of U.S. housing market reports stirred
hope that a drawn-out decline in home prices may be nearing its
end. The closely watched S&P;/Case-Shiller index showed prices
rose slightly for the first time in 10 months.
“If we do see a lessening of downward momentum in housing,
that’s promising for U.S. consumer spending and ultimately for
the global economy,” said Karl Schamotta, senior strategist at
Western Union Business Solutions in Calgary.
“That will cause people to shift funds out of the
low-yielding U.S. dollar and into foreign assets that offer
higher yields,” he said.
The Federal Reserve is expected to reiterate its intent to
keep benchmark U.S. interest rates near zero through 2014 when
it ends a two-day policy meeting on Wednesday.
The dollar shed 0.3 percent each against the Swiss franc
and Canadian dollar but was unchanged against the
yen at 81.14 yen.
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. It was last off 0.4
percent at $1.0286.
EURO GAINS MAY BE FLEETING
The euro, while stronger, was still mired in a broad
$1.30-$1.35 band that has prevailed for most of 2012.
Steven Englander, global head of FX strategy at Citigroup,
said data suggested sales of foreign assets by euro zone
residents helped prop up the euro in late 2011 and early 2012,
as did foreign buying of euro zone debt when yields stabilized.
Such repatriation has helped keep the yen strong in recent
years despite a weak Japanese economy.
But Englander said counting on those trends to continue
underpinning the euro is risky, noting that Europeans do not
hold as many foreign assets as the Japanese do.
“One would tend to think this would work for a while but not
forever,” he said.
Brown Brothers Harriman strategist Mark McCormick said the
collapse of the Dutch government could complicate European Union
efforts to ratify a new fiscal compact designed to tighten
budget rules and keep countries from falling into debt.
The cause of crisis in the Netherlands – inability to agree
on an austerity budget involving deep spending cuts – is also
keeping investors from pushing the euro too high.
“If Holland can’t agree to tighten its belt, then it’s going
to be very difficult to keep up the momentum for cuts in the
more troubled countries,” Schamotta said.
The Netherlands is one of the euro zone’s few remaining
AAA-rated economies. Ratings agency Moody’s said it was sticking
with that rating for now but added that the government’s
collapse was credit-negative..
Many investors also remained on edge as French Socialist
Francois Hollande, who has promised to renegotiate a European
budget pact, is in the lead heading into a May 6 run-off in
France’s presidential election.
“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.
