Dollar hovers near record lows as data awaited
LONDON (Reuters) - The dollar fell on Friday, staying near record lows against the euro and a basket of currencies on Friday as investors awaited reports on U.S. business activity and inflation for confirmation that more rate cuts lie ahead.
The dollar had fallen to record lows the previous session, hit by a fresh batch of weak U.S. housing data which stoked worries about a slowdown in broader economic growth and further Federal Reserve interest rate cuts.
"I think the euro is going to continue to hit record highs against the dollar. The underlying forces that have driven the euro to these levels such as rate differentials have shown no signs of abating," said Simon Derrick, head of currency research at Bank of New York Mellon.
"Given the run of weak U.S. data we've had this week, there is a high likelihood of a move by the Fed at the end of next month. The flipside to that is all the messages we have been hearing from the European Central Bank imply that policy will remain on hold and that they will not cut rates," he added.
Markets are pricing in a roughly 80 percent chance the Fed will ease monetary policy next month, according to Reuters data on Friday.
By 0953 GMT, the dollar index .DXY, a gauge of the greenback's value against a basket of six major currencies, edged down to 78.234 from the previous day's record low of 78.16.
The euro was up 0.2 percent from late New York trade at $1.4177, after hitting an all-time high of $1.4189, according to Reuters data on Thursday.
The single currency showed little reaction to data showing euro zone inflation was at 2.1 percent in September, rising above the ECB's target for the first time in a year. A report indicating that economic sentiment in the region plunged in the wake of global market turbulence, also failed to move the market.
ECB, FED CONTRAST
In contrast to expectations for rate cuts from the Fed, economists reckon the European Central Bank will remain on hold and may even consider further rate hikes in the medium term.
"The flipside to Fed is that all the messages we have been hearing from the ECB. Given the strong money supply figures earlier this week, the ECB will remain vigilant about inflation," said Derrick.
In other currencies, sterling initially was under selling pressure, hit by a Financial Times report which said on its Web site on Thursday that troubled British mortgage lender Northern Rock NRK.L has borrowed a further 5 billion pounds ($10 billion) from the Bank of England. Its total borrowings added up to 8 billion pounds.
But the pound recovered on some technical buying after the it held a key $2.020 support level versus the dollar, a U.S. based trader said.
Sterling last traded at $2.0285, up 0.1 percent on the day. It trimmed losses against the euro to 69.89 pence.
The yen recovered from the previous day's 7-week lows versus the euro to trade little changed at 163.62. It was up 0.2 percent against the dollar at 115.38 yen, boosted by Japanese companies repatriating overseas earnings at the end of the first half of the business year on Friday.
The New Zealand dollar rose to a seven-week high after data showed the economy grew faster than expected in the second quarter, reinforcing views that the central bank will keep interest rates high to contain inflationary pressures.
The kiwi was up 0.60 percent at US$0.7544, after rising as high as US$0.7581 earlier, according to Reuters data.
The greenback has been on the defensive since the Fed slashed rates by 50 basis points last week amid a deepening housing slump that many fear threatens to slow the economy.
Friday features U.S. personal consumption expenditure (PCE) numbers -- the Fed's favorite inflation measure -- at 1230 GMT, followed by Chicago PMI -- which charts Midwest area business activity -- at 1345 GMT.
