The US dollar was mixed in afternoon trade here, falling against against the euro ahead of Thursday's European Central Bank policy meeting major currencies here, but firming against the yen, on the back of some recent solid US data, including better-than-expected trade numbers overnight , dealers said.
The US data has seen investors paring back expectations for the Federal Reserve to cut its interest rates in the first half of 2007, they said.
On Wednesday the US announced its trade deficit for November had declined by 1 pct to 58.2 bln usd, its lowest since July 2005.
"Last night's trade data was much better-than-expected so if you had been sitting there slashing your wrists because of gloom and doom in the US economy you are suddenly getting a bit happier about the recovery we're seeing in the US and that's helping the US dollar," Westpac Banking Corp chief currency strategist Robert Rennie said. "It feels as if the dollar has got further to go," he added.
Rennie noted that President George W Bush's address to the nation, in which he confirmed plans to send more US troops to Iraq, had no impact on foreign exchange markets, as investors have already factored in the likelihood Washington will not make a quick exit from the country.
He added the next cue investors will be waiting for is the statement from tonight's ECB meeting and particularly if it contains the word "vigilant" as that would signal a likely rate hike in February.
Rennie said the market is not expecting any hike tonight but is pricing in a 50 pct chance of a rate hike for February in the euro zone, and a 100 pct chance for March.
He added that tonight's Bank of England policy meeting is also not expected to result in a rate hike, but the market has priced in an increase in February because of the continuing strength of the UK property market. Meanwhile, he said, chances of a February rate hike in Australia have increased after strong employment data for the three months to December, though he noted that consumer price inflation data due January 24 will be the key determining factor.