* U.S. new home sales fall sharply, hurt dollar
* Gap between 2-year U.S./Japan bond yield at 1-1/2-year
* Euro hits 1-month high vs yen, Nowotny's comments help
By Wanfeng Zhou
NEW YORK, Aug 23 The dollar fell against a
basket of currencies on Friday, retreating from a three-week
peak against the yen, as a steep drop in U.S. new home sales
dented expectations that the Federal Reserve will reduce its
asset-buying program next month.
The euro climbed above $1.34 after the data, edging back
toward a six-month high set on Tuesday. Signs of an improving
euro zone economy have buoyed the currency in recent weeks.
Sales of new U.S. homes slid 13.4 percent in July to their
lowest in nine months, hurt by the rise in U.S. mortgage rates,
suggesting an economy that may not be as robust as many people
"This report makes it look more likely that tapering will
come later rather than sooner, perhaps under the leadership of a
new Fed chair," said Douglas Borthwick, managing director of
Chapdelaine Foreign Exchange in New York.
The dollar slipped 0.2 percent against a basket of six major
currencies to 81.360.
Uncertainty about when the Fed will start reducing its
$85-billion per month bond buying program has pressured the
dollar in recent weeks. Minutes of the Fed's July meeting showed
differences of opinion among members of the Federal Open Market
Committee as to when the central bank should act.
Currency speculators pared their bets in favor of the U.S.
dollar for a fifth consecutive week in the week ended Aug. 20,
data from the Commodity Futures Trading Commission showed on
The value of the dollar's net long position fell to $13.54
billion, the smallest in two months, from $17.62 billion the
previous week. Speculators were bullish on the euro for a third
The euro rose 0.2 percent to $1.3383, helped by
comments from European Central Bank policymaker Ewald Nowotny,
who said he did not see much reason for the ECB to cut interest
rates. He spoke after surveys showed euro zone economic activity
A second reading of German gross domestic product confirmed
that Europe's biggest economy grew by 0.7 percent in the second
quarter, helped by domestic demand, fueling optimism Europe's
largest economy will outperform i 2013.
The recent pickup has pushed euro zone money market rates
higher, and if sustained, is likely to challenge the
effectiveness of the ECB's pledge to keep rates low until a
full-fledged recovery is in place.
On the week, the euro was up 0.4 percent and 0.6 percent
firmer so far in August.
The dollar slipped 0.1 percent to 98.68 yen after
hitting a three-week high of 99.15 yen on the Reuters trading
Despite the pullback, the dollar is still heavily favored by
investors over the yen this year. The gap between two-year U.S.
Treasury yields and their counterpart in Japanese
government bonds moved to the widest since March 2012
and should encourage more investors in Japan to buy U.S.
Treasuries, analysts said.
Sebastien Galy, currency strategist at Societe Generale in
New York, said "there has been a tick-by-tick correlation
between dollar/yen and U.S. bond yields, which has certainly
supported that pair."
On the week, the dollar rose 1.1 percent against the yen. So
far this year, the dollar has gained 13.7 percent against the
The euro rose 0.1 percent to 131.97 yen, after
touching a one-month high of 132.42.
The dollar also fell against other currencies, down 0.2
percent at 0.9211 Swiss franc. The Australian dollar
gained 0.3 percent to #0.9033.