The USD rose sharply against major currencies after US new homes sales data came in well above expectations, suggesting that US interest rates could be heading higher.

US new home sales rose by 4.9 pct in April to 1.20 mln units, the highest level so far this year and well above analysts’ expectations for a fall to 1.15 mln, figures showed.

The data will spark further talk that the Federal Reserve may raise US interest rates further at its next meeting on June 29, particularly given that a slowing housing market was one of the main reasons seen for a possible pause in rate hikes.

In other data out this afternoon, US durable goods orders slumped by 4.8 pct month-on-month in April, much worse than analysts’ expectations for a much more modest 0.6 pct fall. The market was little concerned by these numbers, however, given that they followed a massive 6.6 pct jump in March.

‘The unexpectedly large 4.8 pct month-on-month decline in durable goods orders in April should be interpreted primarily as a drop back to more normal levels after a 6.6 pct jump in March, rather than a sign of a weakening economy,’ said Paul Ashworth at Capital Economics.

‘Overall, these figures are a little disappointing but certainly no disaster, particularly as the survey evidence is consistent with continuing robust growth in orders through the summer,’ he concluded.

The numbers caused the euro to reverse earlier gains which had come on the back of this morning’s stronger-than-expected Ifo survey on the German business climate.

Tomorrow, attention will turn to the second estimate of first quarter US GDP data, where analysts believe year-on-year growth could be revised as high as 6 pct from the previous estimate of 4.8 pct.

Elsewhere, the pound remained weak after this morning’s industrial trends survey from the Confederation of British Industry came in below expectations, showing a deterioration in the order books balance to -12 in May from -11 in April.

Earlier, UK business investment figures for the first quarter were very strong, though there was some disappointment that the improvements came from the manufacturing and construction sectors, while the services sector saw a decline in investment.

The first revision to first quarter UK GDP is released tomorrow, which will give additional data on household consumption. GDP is forecast to be left unchanged at a 0.6 pct increase from the fourth quarter for a 2.2 pct annual rise.

SOURCE: AFX