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Rate-cut expectations drag on US dollar

The dollar weakened on Friday, dragged down by expectations that the US Federal Reserve will have to cut interest rates sharply again next month to ward off recession in the world's biggest economy.

The euro was at US$1.4826 around 10pm GMT, up from US$1.4811 late on Thursday in New York.

The dollar slipped to ¥107.14 from ¥107.37.

A stronger-than-expected survey on European business, suggesting the eurozone is proving resilient to both a US slowdown and a global credit crunch, dimmed the near-term prospects of a European Central Bank rate cut, dealers said.

"The dollar remains on the defensive ... Reinforcing the dollar decline was a stronger-than-expected report on eurozone services, which reduced the likelihood of a [eurozone] rate cut," Ashraf Laidi at CMC Markets said.

Dealers said the deteriorating outlook for the US economy has increased the odds the Fed will cut interest rates sharply again at its March 18 meeting, most likely by half a percentage point after a reduction of 1.25 percentage points last month.

"Market sentiment is that there is a very good chance of another rate cut coming up," Mic Mills at TradIndex.com said.

Market players put the likelihood of a half-point Fed rate cut at 80 percent, piling the pressure on the dollar as other currencies offer better returns.

The euro hit a record of US$1.4967 on Nov. 23 last year.

In late New York trading, the US dollar was at 1.0850 Swiss francs, down from SF1.0897 late on Thursday.

The pound was at US$1.9662, up from US$1.9630.
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