By Bo Nielsen and Yoshiaki Nohara Dec. 23 (Bloomberg) -- The dollar traded within half a cent of the highest level in more than three months against the euro before a report that may add to signs of a recovery in the world’s largest economy. The dollar was also near an eight-week high against the yen as investors bet sales of new homes in the U.S. increased to the most in more than a year. The pound fell for a third day versus the dollar after minutes of the Bank of England’s most recent meeting showed policy makers voted unanimously for sticking to a plan to buy as much as 200 billion pounds ($326 billion) in bonds to revive the economy. “People are taking the opportunity from the good U.S. data to buy some dollars before year end,” said Simon Derrick, the London-based chief currency strategist at BNY Mellon, the world’s biggest custodian of assets. “But the big picture hasn’t changed and the Federal Reserve has been pretty clear about its intentions to keep rates low, so we expect the dollar to come under pressure again in the new year.” The dollar traded at $1.4248 per euro as of 9:41 a.m. in London from $1.4249 in New York yesterday, when it climbed to $1.4218, the highest level since Sept. 4. The dollar was at 91.82 yen, from 91.83 yen. It reached 91.87 yen earlier, the strongest since Oct. 27. The greenback has benefited as U.S. bond yields climbed since the end of November after reports showed the nation’s jobless rate unexpectedly fell, retail sales beat forecasts and purchases of existing homes rose to the highest level in almost three years. ‘Chugging Along’ Two-year German notes yielded 30 basis points more than similar-maturity U.S. securities today, down from 59 points on Nov. 30. Japanese 10-year notes yielded 250 basis points less than Treasuries yesterday, the biggest gap since October 2008. “The U.S. economy is chugging along in its recovery mode, punching out some decent figures,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Sydney. “Markets are re-rating some of the major currencies, particularly the euro and yen. The dollar has more to offer from these levels than those currencies do.” Sales of new homes in the U.S. probably rose to a 438,000 annual pace in November, the highest level since August 2008, according to the median estimate of economists in a Bloomberg News survey. The Commerce Department will release the data at 10 a.m. in Washington today. BOE Minutes The pound fell 0.2 percent to $1.5931 after the publication of the minutes of the Bank of England’s Dec. 10 Monetary Policy Committee meeting, which showed all nine members voted for prolonging the central bank’s asset-purchase program. Policy makers signaled last month that the most “natural” time to reassess the program will be in February, when they will have more evidence of the economic recovery. The yen erased losses against the dollar today amid speculation investors are removing some bets on U.S. currency gains before the Christmas holiday. “All we hear is some intra-day profit taking” on dollar- yen, said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase & Co. in Sydney. “Liquidity is not there, so you are actually getting a lot more moves than you normally should get.” Bank of Japan Governor Masaaki Shirakawa said in an interview with TV Tokyo on Dec. 21 that the central bank will “persistently” keep interest rates at “virtually zero” to fight deflation. The Japanese currency is headed for a 3 percent drop against the dollar this month, the most since February. BOJ Rates “The yen gains at times as exporters take advantage of higher levels of the dollar-yen to bring home profits,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest bank. “Shirakawa’s reiteration to keep rates low seems to be helping the yen weaken, as solid U.S. data boost demand for the dollar.” Shirakawa is scheduled to speak at an annual meeting of Keidanren, Japan’s biggest business lobby, tomorrow in Tokyo. A government report on Dec. 25 may show consumer prices fell for a ninth month in November, according to a Bloomberg survey of economists. Gains in the dollar were limited as the 14-day relative strength index, or RSI, for the currency against the euro remained below 30 for a fifth day, a sign the U.S. currency is likely to fall. The index was at 25.21 today. “Technical indicators show the dollar’s rise has been rapid, as investors unwind numerous dollar-short positions before Christmas,” said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. “I’m guessing the market will switch back to a dollar-weakening trend early next year.” To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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