Dollar Fighting Back Versus Euro As Focus Turns To Fed

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The dollar surged ahead versus the euro Tuesday morning in New York as the Federal Reserve prepared to meet amid growing anxiety that the economic growth seen over the summer may not be sustainable without continued support measures.

With the US consumer still on edge as unemployment approaches 10 percent, many analysts are pointing out that while the third quarter figures on the economy are somewhat encouraging, organic growth is unlikely until the jobs situation improves.

The safe haven dollar has managed recover versus the euro over the past week, prompting the rally in global equities to run out of steam.

The dollar jumped to a monthly high of 1.4623, rising more than a penny even as traders considered news that the European Commission expects the euro area economy to emerge from recession in the second half of 2009.

However, the economy is set to contract 4% for 2009 as a whole.

Joaquín Almunia, Commissioner for Economic and Monetary Affairs said, "The EU economy is coming out of recession. This owes much to the ambitious measures taken by governments, central banks and the EU that have not only prevented a systemic meltdown but have kick-started the recovery. However, the road ahead is a challenging one."

The dollar firmed up a bit versus the yen, moving back above the 90 mark. The pair has been choppy over the past few weeks, with the buck finding a measure of support after testing a 1995 low in October.

Meanwhile, the dollar was steady versus its Australian counterpart even after the RBA raised its interest rate for the second straight session. The dollar rose to .8920 versus the aussie, but leveled off to .8965 approaching 8 am ET.

In October, Australia became the first G-20 member nation to hike its benchmark interest rate since the onset of the financial crisis in late 2008.

The dollar hit a weekly high versus the sterling, rising to 1.6260 before hitting resistance. On a longer term basis, the pair has been moving between 1.5700 and 1.6700 for months.

All eyes will be on Washington, DC tomorrow as the Fed wraps up its latest policy meeting. While Ben Bernanke and company are universally expected to maintain the key interest rate near zero, traders will be paying close attention to the accompanying statement, looking to see whether rates will be left alone "for some time to come," as the central bank has recently assured.

Looking at today's economic calendar, the government is releasing September factory orders at 10 am ET. Economists are looking for a September gain of 1 percent.

(Market News Provided by RTTNews)