Dollar falls as oil soars

The dollar fell against the euro and other major currencies on Friday as oil prices rose to a record near $128 a barrel. A rebound in construction of new homes did little to dispel economic gloom.

The 15-nation euro rose to $1.5584 in late New York trading from $1.5454 late Thursday.

The British pound rose to $1.9562 from $1.9451. The dollar slid to 104.17 Japanese yen from 105.26 yen.

The Commerce Department reported Friday that construction of new homes posted the biggest increase in more than two years in April, a rare spot of good news amid the worst downturn in housing in more than 20 years.

Still, the dollar only briefly gained on the news, as data also showed the building of single-family homes continued to weaken.
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Also Friday, oil prices hit a record high of $127.82 a barrel in a volatile market, nearly $1 higher than the previous high mark of $126.98. It was oil's 8th record high in the past 10 trading sessions.

"We tend to see the euro-dollar rise amidst rising oil prices," said Michael Woolfolk, senior currency strategist at the Bank of New York, even as he noted that the dollar's rise and fall was more tightly correlated with investor confidence and equities trading.

But surging oil prices have helped drive up inflation globally, even as the Federal Reserve has cut interest rates 7 times since September, eroding the value of the dollar.

Lower interest rates can boost the economy, but often weigh on a country's currency as investors transfer funds to higher-yielding assets.

"With a correction to $100 a barrel we could see the euro-dollar fall back below $1.50," Woolfolk said, while rallying equity markets worldwide should boost the dollar against the yen as traders resume risky "carry trades."

In a carry trade, currency investors borrow money from a country with low interest rates, such as Japan, and use the funds to invest in currencies with better returns.

In other New York trading, the dollar fell to 1.0474 Swiss francs from 1.0565 francs, while the Canadian dollar edged lower to 1.0004 from 1.0009.