Bruised dollar hits record lows on rate cut fears

NEW YORK (Reuters) - The dollar fell to fresh lifetime lows against the euro and a basket of currencies on Friday as investors fretted that an anticipated Federal Reserve interest rate cut next week would not be the last.

However, with much of the negative news already priced in, analysts predicted a mild recovery for the embattled greenback going into Wednesday's Federal Open Market Committee verdict on rates.

U.S. crude oil's surge to record highs above $92 a barrel and gold's jump to 28-year peaks bruised the dollar, boosting commodity currencies such as the Australian dollar, which hit a 23-year high against the U.S. currency.

"The fact that the 25 basis points is already priced into the market is going to be a double negative for the dollar because it will be a loss of the interest rate foundation and it's going to suggest further cuts," said Ashraf Laidi, chief currency strategist at CMC Markets in New York.

Against the backdrop of weak economic data and hefty losses by the country's big financial institutions, U.S. interest rate futures are fully reflecting a 25-basis-point cut in the federal funds rate target to 4.50 percent, while the odds for a half-point reduction are around 55 percent.

In late New York trade, the euro was up 0.5 percent at a record high of $1.4394, according to Reuters data.

Analysts, however saw some brief respite for the dollar early next week, with the market scaling back short positions.

"We will probably see people start to take profits on Tuesday ahead of the meeting because they have priced in so much news. We could get a correction that might take the euro to $1.4235," said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York.

The dollar index, which measures the greenback's value against a basket of six major currencies, dropped as low as 76.977, the lowest since its post-Bretton Woods inception more than 30 years ago.

It was last trading 0.4 percent down at 76.998.

Remarks by Eurogroup Chairman Jean-Claude Juncker in a newspaper interview published on Friday that the European currency had not yet reached levels that might cause alarm also contributed to the negative tone against the dollar.

Data showing euro zone money supply annual growth for September came in at 11.3 percent, slightly slower than in August but still well over the European Central Bank's 4.5 percent target, added to the euro's strength.

The Australian dollar climbed as high as US$0.9181, while the New Zealand dollar scaled a session peak of US$0.7674.

The Canadian dollar hit a fresh 33-year high against the greenback. The dollar was last trading 0.5 percent lower at C$0.9618.

The rise in high-yielding commodity currencies, coupled with gains in equity markets, helped boost risk appetite and encourage investors to make carry trade bets funded by cheap borrowing in the Japanese yen.

The dollar was steady against the yen at 114.22 yen, while the euro gained 0.5 percent to 164.38 yen.

"The yen has increasingly more upside to it versus the dollar, based on the potential of further unwind of carry trades based on what we think is going to be further downside in the stock markets and a loss of U.S. interest rate foundation," said CMC Markets' Laidi.

Sterling hit a three-month peak against the dollar at 2.0574, but fell against the euro as investors bet Britain would be next to start cutting rates.