The dollar bounced off record lows versus the euro and moved away from 15-year troughs against a basket of currencies on Wednesday, after recent losses attracted buyers even though overall sentiment remained bearish.

Recent U.S. economic data on housing and consumer confidence continued to support expectations of a U.S. interest rate easing next month. Such a cut, coming after last week's 50-basis-point reduction in the fed funds rate, would further tarnish the appeal of dollar-denominated assets.

The interest rate futures market has almost fully priced in chances the Federal Reserve will cut rates by one-quarter point at the October 30-31 policy meeting.

The dollar rebounded from 1992's all-time low against a basket of six major currencies.

There seems to be a number of European corporate offers scattered above the market in euro/dollar, said Sultan Lone, deputy global head of FX sales and trading at market maker Swiss Finance Corp.

But he noted that market seems to be increasingly focused on the possibility that currencies in the Gulf region could remove their peg to the dollar.

Analysts said that the September cut in the fed funds rate has exacerbated revaluation pressures in the region, adding to the inflationary impact from a generally weak dollar.

If there is any change in the dollar peg, then we would see new highs in euro/dollar pretty soon, said Lone.

Saudi Arabia's Central Bank Governor Hamad Saud al-Sayyari said on Wednesday the world's largest oil exporter would not change its foreign exchange policy because the U.S.-dollar peg offered flexibility.

Market participants say the euro's gains versus the dollar may be excessive as it has climbed nearly 4 percent this month. But many anticipate that dollar weakness is likely to continue in the near term.

Divyang Shah, chief strategist at Commonwealth Bank of Australia, said the correction in the dollar looked shallow, suggesting that dollar weakness will continue, with narrowing rate differentials and the U.S. housing downturn still the things to watch.

The euro rose as high as $1.4162 before easing back to $1.4126 by 7:27 a.m., down 0.1 percent on the day. The dollar index was at 78.540, after sliding to a 15-year low of 78.213 on Tuesday -- within reach of the all-time trough of 78.19 set in 1992.

Against the yen, the dollar rose 0.5 percent to 115.31, boosted as Japanese mutual funds bought the dollar and other foreign currencies to get overseas assets.

The euro traded up to 162.93 yen, a six-week high.

The Swiss franc, meanwhile, showed little reaction to a higher-than-expected KOF index. The dollar was up 0.3 percent at 1.1701 francs.


Traders expect the euro to continue its climb even as concerns grow that a global credit crunch, triggered by defaults on U.S. mortgage debt, may hit the European economy as companies and consumers find it harder to borrow.

In light of volatility in financial markets and the Fed's rate cut, most economists polled by Reuters expect the European Central Bank to keep rates at 4.0 percent until the year-end, and earlier expectations of a 25 basis point rise by then have dwindled.

Hungry for more hints on the extent of sluggishness in the U.S. economy, investors awaited durable goods orders for August. Forecasts are for a 3.1 percent fall in orders last month.

Durables are a volatile series with the headline number often driven by large ticket items...Yet the report does help predict equipment spending and inventories for forecasting GDP and both of which are expected to add to slightly to Q3 GDP, said Brown Brothers Harriman in a research note.