Euro is up, dollar plunges under pressure

As weak US housing data and a dark economic forecast for 2009 weighed on the currency, US dollar dropped against the euro and a basket of currencies on Tuesday. The difference of an aggressive easing of money in the US against a cautious European Central Bank is handing support to the euro while hurting the dollar, experts said.

Marketers also said that the recent conflict in Gaza and Israel as helping push the Swiss franc to a five-month high. But the sterling still dropped to a 6-1/2 year low against the US dollar and nearing record lows against the euro on hopes of UK interest rates being slashed down.

In New York's early trading, the euro jumped 1.2 percent on the day according to Reuter’s data.

"The Fed continues to be extremely proactive while the ECB has been much more cautious," said Jessica Hoversen, a fixed income and currency analyst at MF Global Ltd. in Chicago. "As a result, we have the end of the year yield differentials between the two regions that favor the euro, at least for now."

US interest rates are nearing to zero and policymakers said they are prepared to do more unconventional ways of providing liquidity to boost the moribund economy.

But in difference, euro's interest rates is still at 2.5 percent and policymakers are not sure about how much the rates will be slashed down in the future. Hoversen added that the thin conditions in the market during this holiday season and a dark forecast for key US sectors like housing may push the dollar down in the next few days.

In October, the price for a single-family house in the US dropped to 18% from the previous year, according to a statement released by the Standard & Poor's/Case-Shiller Home Prices.

"The numbers are certainly very bad," said Kathy Lien, director of FX research at GFT Forex in New York. "But there is one silver lining though. The pace of the decline seems to have slowed during the month."

The U.S. dollar index plunged to about one percent against a basket of currencies to 80.595.

EURO NEARS PARITY

Sterling dropped to its lowest at $1.4385, its weakest since early 2002, according to Reuter’s data, while the euro jumped 1.4 percent to 97.79 pence.

"The market has been focusing a lot on the weakness in the U.K. economy," said Hoversen at MF. "It seems the pound will be 'forced' to touch parity with the euro pretty soon."