The battered US dollar may rally in the week ahead after a week of relatively benign economic data indicated the economy is weathering problems in the housing and credit markets.
Surprising data including 3.9 percent growth by the US economy in the third quarter and an unexpected rise of 166,000 in October non-farm payrolls has at least some investors betting that the Federal Reserve may not ease again in the current interest rate cycle.
The Fed on Wednesday eased the benchmark lending rate for overnight lending between banks by 25 basis points to 4.5 percent, but appeared to shift to a neutral stance on future moves by saying the risks of higher inflation and weaker growth were now balanced.
If next week's US data - including the Institute for Supply Management's non-manufacturing index for October, International Trade for September and the preliminary report on the Reuters/University of Michigan Surveys of Consumers - are positive for the economy, investors will see the Fed's view as reinforced.
"We're coming from a point where the market has a propensity to sell dollars based on expectations for further policy easing from the Fed," said Omer Esiner, foreign exchange analyst at Ruesch International in Washington. "Combined with Wednesday's FOMC statement, upside surprised to data in the week ahead further diminish the likelihood of another rate cut this year."
The dollar fell for the fourth straight week against the euro. The single euro zone currency rose 0.7 percent against the greenback in the latest week, sending it to a fresh record high. The euro last traded at 1.4478.
The dollar gained 0.7 percent against the yen this week, its second straight week of gains. It last traded at 115.13 yen. The dollar index, the dollar measured against a basket of six major currencies, also fell to a record low in the week past. It last traded down 0.8 percent for the week at 76.434.
External factors influencing the dollar will include policy meetings by the European Central Bank and the Bank of England with both decisions on interest rates expected on Thursday.
The ECB and BOE are both expected to remain on hold though investors are watching the ECB for any chance of a rate hike in December, said Greg Salvaggio, senior currency trader at Tempus Consulting in Washington. Fed fund futures indicate a 66 percent chance the Federal Reserve will cut the benchmark rate by 25 basis points in December. The Reserve Bank of Australia announces a rate decision on November 7. The RBA is expected to raise the benchmark rate.
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