The US dollar pared losses against the yen this afternoon after US housing starts rose more than expected in June and permits for future construction unexpectedly increased.

Housing starts for June rose 14.6% to 629,000 as opposed to the 2.7% increase that economists had predicted, and building permits rose 2.5% to 624,000 in June contrasting from the 2.3% decrease that was forecast. The US dollar was trading at 79.0494 against the yen in the afternoon, up from 78.92 prior to the release of the US data.

Though signs of strength in the US housing market bodes well for the US dollar as the hard-hit sector has weighed on US economic recovery, any more gains in the dollar today will likely be reined in as US debt ceiling talks continue to fail in reaching a consensus for how to extend the debt ceiling and cut government spending. With markets anxious that the European debt crisis will spiral out of control, and with the US debt ceiling deadline approaching, investors are becoming increasingly risk averse, moving into safe-haven currencies. USD/JPY reached an intraday low 78.88.