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CURRENCIES

US dollar gains as Fed rate cuts more unlikely

London

THE US dollar strengthened on Wednesday as US economic data suggested the Federal Reserve was unlikely to cut interest rates further and as liquidity shrank before the coming holidays.

The US dollar rose against the euro, which has struggled to stay above its 200-day moving average, and against the pound, which has lost all its election gains on fears the United Kingdom could leave the EU without a trade deal.

Industrial production rebounded in the United States in November, mainly because a strike by General Motors workers ended. Money markets are not pricing in a rate cut anytime soon.

The US dollar is enjoying the "legacy of the data looking better yesterday and the lack of liquidity towards month and year end", said Jeremy Stretch, head of currencies at CIBC Capital Markets. However, it "looks like we could start to pre-position for greenback weakness next year", he said.

German business morale rose more than expected in December, a survey showed on Wednesday, another sign that a manufacturing slump in Europe's largest economy may be bottoming out after overall output shrank earlier in the year.

Data failed, however, to help the falling euro, which was last down 0.2 per cent at US$1.1124, below the 200-day moving average of US$1.11515.

US Trade Representative Robert Lighthizer said on Tuesday that the US may raise tariffs on European goods as it tries to shrink its chronic trade deficit with the continent, re-igniting worries of the prospects of the export-driven euro.

The US House of Representatives was due to vote on whether to impeach President Donald Trump later on Wednesday and the Senate is expected to vote in January.

An index that tracks the US dollar against six major currencies jumped to a six-day high of 97.343 and was last up at 97.288.

The pound was down by 0.2 per cent at US$1.3102 after falling to US$1.3074, its weakest since Thursday's election gave the pro-Brexit Conservative Party a majority in Parliament. The pound extended its slide on rekindled fears of a chaotic exit from the European Union.

The US dollar slid below 7 to the Chinese yuan, as the US and China complete phase one of a trade deal.

Elsewhere, the New Zealand dollar and the Swedish crown fell to a one-week low of 0.6555 against the US dollar and of 10.4960 against the euro respectively. REUTERS