Dollar Falls Against Yen Before Housing, Durable Goods Reports

By Kosuke Goto

July 21 (Bloomberg) -- The dollar declined against the yen for the first day in four on speculation reports on U.S. home sales and durable-goods orders will encourage the Federal Reserve to delay raising interest rates.

The currency also weakened versus the euro after U.S. Treasury Secretary Henry Paulson told CBS News yesterday the economy is in a ``challenging time'' and probably will have slow growth for months because of higher oil prices. The pound fell after a private industry report showed U.K. house prices dropped the most since at least 2002.

``There are still grave concerns about the slowing U.S. economy,'' said Masashi Kurabe, head of currency sales and trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Hong Kong. ``I can't be wild with joy over the dollar yet.''

The dollar slid to 106.85 yen at 10:15 a.m. in Tokyo, from 106.96 yen in New York on July 18. It declined to $1.5866 per euro, from $1.5847. The U.S. currency touched $1.6038 on July 15, the weakest since the European currency's debut in 1999. The euro bought 169.47 yen from 169.49.

The U.S. currency may move between 106.20 yen and 107.40 yen today, Kurabe forecast.

Currency trading volume today may be about 75 percent of normal levels because of a public holiday in Japan, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-biggest lender.

Weaker Pound

The pound slid for a second day as a Rightmove Plc report showed U.K. house prices fell 2 percent in July from a year earlier, the first annual drop since Britain's most-used property Web site started measuring them in 2002.

The pound depreciated to $1.9938 from $1.9989 in New York. Against the euro, it declined to 79.45 pence from 79.29 pence. Bank of England policy maker David Blanchflower said in an interview with the Guardian newspaper that the U.K. economy is entering a recession that may last more than a year and the central bank must lower interest rates to support the economy.

``Blanchflower said there may be three to four quarters of contraction, and the housing data were weak,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``We'll likely see downward pressure on the pound.''

Sales of previously owned homes in the U.S. declined to a 4.93 million annual pace in June, from 4.99 million in May, as the housing slump headed for a third year, according to the median estimate of economists surveyed by Bloomberg News.

The National Association of Realtors will release the report on July 24. A day later, the Commerce Department will say sales of new houses dropped to an annual pace of 503,000 from 512,000 in May, a separate survey shows. Sales of existing and new homes are down 35 percent from their July 2005 peak.

Inflation Concern

Losses in the dollar may be limited after central bank policy maker Gary Stern said the Fed shouldn't wait for housing and financial markets to stabilize before it begins raising interest rates.

``We're pretty well-positioned for the downside risks we might encounter from here,'' Stern, president of the Federal Reserve Bank of Minneapolis, said in an interview on July 18. ``I worry a little bit more about the prospects for inflation.''

The report on durable goods, due from the Commerce Department on July 25, is projected to show that orders excluding transportation equipment fell 0.2 percent in June, according to the Bloomberg survey.

The index of leading economic indicators may have fallen in June for the first time in four months, economists forecast a report today will show. The Conference Board's gauge dropped 0.1 percent after increasing by the same amount in May, signaling growth is likely to slow over the next three to six months.

The Fed has lowered its target rate for overnight bank lending by 3.25 percentage points since September to 2 percent. Futures on the Chicago Board of Trade showed a 7 percent chance the central bank will increase its target rate for overnight bank loans by a quarter-percentage point at its Aug. 5 meeting, down from 12 percent odds a week earlier.

To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net