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Euro rises as US dollar weakens on rate cuts


THE euro gained on Thursday as the US dollar weakened after the Federal Reserve on Wednesday cut interest rates for the third time this year and left open the question of whether it would cut them further.

The US dollar was falling against most currencies, particularly the Chinese offshore yuan, which rose to an 11-week high.

The Fed lowered its benchmark rate by 25 basis points to a target range of 1.50 per cent to 1.75 per cent. But it dropped a reference in its policy statement that it would "act as appropriate" to sustain economic expansion - language considered a sign of future cuts.

Still, lack of an explicit signal, that the Fed was done with easing for now was taken as less hawkish than expected, helping to drive the US dollar down.

"The new, slightly shorter, statement tries to keep their options open and puts them back into a data-dependent mode, but circumstances could mean that they have less optionality than they think," said Tim Foster, portfolio manager at Fidelity International in London.

The euro was up 0.1 per cent at US$1.1161, after earlier reaching a 10-day high of US$1.11705.

It might fall later, though. Reports later on Thursday are expected to show the eurozone's gross domestic product growth slowed and its inflation rate fell in the third quarter.

The flash HICP inflation data was expected to fall to 0.7 per cent in October from 0.8 per cent in September, according to a Reuters poll.

Preliminary third-quarter GDP growth was forecast at 1.1 per cent year-on-year, compared with 1.2 per cent in the second quarter.

"European data won't provide many reasons to be cheerful about the euro," ING analysts said in a note.

The US dollar index rose on Wednesday to its highest since Oct 17 as Fed chairman Jerome Powell spoke about the central bank's decision. But it slipped 0.4 per cent on Thursday to 97.29, its lowest in a week.

The US dollar also fell against the safe-haven Japanese yen , by 0.2 per cent to 108.62 yen. It earlier reached a six-day low of 108.54.

The yen gained after Chile withdrew as host of an APEC summit in November, where the United States and China had been expected to take major steps toward ending a 15-month-old trade war.

Traders still think the world's two biggest economies will arrive at a trade truce. China's Foreign Ministry said on Thursday Chinese and US heads of state have been maintaining contact. The Chinese yuan rallied to its highest in 11 weeks against the dollar. The offshore yuan last traded hands at 7.0345 per US dollar, up 0.1 per cent.

"Because of this sort of lull in US-China trade war, you're starting to see investors getting their toes wet in EM assets," said Stephen Gallo, European head of FX strategy at BMO Capital Markets. "People are hopeful of a year-end Santa Claus rally ... they're hopeful we can get a trade deal." REUTERS

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