Signs that the US housing sector, the main engine of recent growth, is cooling rapidly have led some economists to predict the Fed could cut rates in the second half of 2007.
Lower rates make dollar-denominated securities less attractive to investors and decrease demand for the dollars to buy them if investors can find better yields elsewhere.
“The market focused on the prospects of a slowing US economy and to date the biggest signs of slowing have come from the housing sector,” said Ron Simpson, managing director of currency analysis at Action Economics in Tampa, Florida.
“Unless things change, the odds of another rate hike this year are slim.”
Mid morning in New York, the euro climbed 0.3 percent to $1.2836 EUR but had traded as high as $1.2852 after the report. The dollar was down 0.3 percent at 116.20 yen JPY.
The Fed is widely expected to keep rates on hold at its next policy meeting in September. After bumping up rates 17 straight times, the Fed kept the funds rate steady at 5.25 percent earlier this month, saying slower US growth would help moderate price pressures.
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