The US dollar was trading higher, adding to gains against the yen and also reversing earlier weakness against the euro, as the market reassesses the prospects of US interest rate cuts next year, dealers said. They said said there has been some revision of a previously pessimistic view of the economy particularly after Tuesday's stronger-than-expected consumer confidence data. Dealers said robust economic reports, including new home sales, are lending support to dollar, particularly as market has nearly fully priced a 25 basis Fed interest rate cut by May 2007. At 2.30 pm, Sydney, (0430 GMT) the dollar was at 117.47 yen, up from 117.37 in mid morning trade here while the euro was at 1.2723 usd from 1.2726. Dealers said upcoming US data, including a final reading for second quarter growth gross domestic growth on Thursday in the US and a key inflation report on Friday, may give the dollar clearer direction and provide a better picture of the direction of the US dollar. The inflation report to be released on Friday will be US core Personal Consumption Expenditure deflator data for August. The core PCE deflator is the Fed's preferred inflation measure, thereby providing an important gauge on whether the Fed will continue to keep interest rates on hold, having not lifted its target funds rate after its last two policy meetings. Commonwealth Bank of Australia senior foreign currency dealer Richard Grace said he is surprised how aggressively the market has priced in a US rate cut by May next year, adding that these expectations may be in the process of being wound back. "The US dollar is coming back but I can't pinpoint a major significant driver," Grace said. "Recent data has been mixed but I think people are putting a more pessimistic spin on it," he said. Grace said the PCE data will be an important influence on the dollar's short-term direction. Meanwhile, at 2 pm Sydney the euro/yen cross was at 149.47 yen from 149.36, having gained overnight after Japan's new Finance Minister Koji Omi said there is no need to comment or act on movements in the euro/yen rate at present. Dealers said the market has been wary of possible comments by European and Japanese officials on the yen, following the euro rising to a record high against the yen of 150.73 yen on Aug. 31. "There's been a follow-on from the new finance minister's comments in trading today while the stronger than expected August Japanese retail sales were largely ignored - you can't really rely on those figures and I think we will see further yen weakness because of these other influences," Grace said.