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Dollar lifts on ECB stimulus ramp-up, US housing data
[NEW YORK] The dollar rallied for a second day on Tuesday, boosted by the European Central Bank's plan to step up asset purchases under its massive stimulus programme and strong US housing data.
The dollar benefited against the euro after a European Central Bank official said that the bank would increase its asset purchases in May and June to offset an expected market slowdown in the following months, to maintain the program's monthly average of 60 billion euros.
"Bigger bond purchases over the short run could have a meaningful impact on the central bank's balance sheet which is inherently negative for a currency," said Joe Manimbo of Western Union Business Solutions.
The euro dropped to US$1.1149 around 2100 GMT from US$1.1315 late Monday.
The greenback also gained on data showing surging US housing starts in April, up 20.2 per cent to their highest level since November 2007, and a 10.1 per cent jump in home building permits. The report seemed to indicate that the economy's abysmal first quarter was largely related to severe winter weather.
"These figures support our view that concerns about the economy based on the first quarter are misplaced; the economy is set to rebound quickly, just like last year. In turn, this means the Federal Reserve still has enough ammunition to start raising short-term interest rates in June," said FT Advisors in a research note.
Investors were expected to pore over the minutes of the central bank's April 28-29 Federal Open Market Committee meeting, to be released Wednesday, in search of insights on the plan this year to lift the key federal funds rate, pegged at the zero bound since late 2008.