January 8, 2019 / 3:51 PM / a year ago

FOREX-Dollar rallies at euro's expense, but outlook still bleak

    * German industrial output slumps
    * Fears of euro zone recession mount
    * Dollar outlook remains dim with lower rate outlook
    * Focus on U.S.-China talks

 (Recasts, updates prices, adds new comment, FX table, changes
byline, dateline; previous LONDON)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 8 (Reuters) - The dollar rose on Tuesday,
rebounding from a nearly three-month low in the previous session
amid expectations of a pause in the U.S. rate hike cycle, as
investors focused on the risk of a euro zone recession after
data showed more signs of slowing in the region.
    An unexpected fall in German industrial output for the third
straight month helped to weaken the euro. The drop
was modest, but it underscored concerns about a slowdown and the
European Central Bank's caution as it tries to wean the region
off stimulus.
    German exporters are struggling with weaker global demand
and trade disputes driven by U.S. President Donald Trump's
    "The euro had its upturn halted by German data showing the
third decline in as many months in a gauge of factory growth,"
said Joe Manimbo, senior market analyst at Western Union
Business Solutions in Washington.
    "Another decline in the fourth quarter would signal
recession, a scenario that would jeopardize an ECB rate hike
this year and likely increase headwinds on the single currency,"
he added.
    The European Central Bank has said it plans to leave rates
unchanged through the summer of 2019. 
    In mid-morning trading, the euro fell 0.4 percent to
$1.1431. It has traded in a tight range of $1.12 to $1.15 since
    Weakness in the euro supported the dollar, which rose 0.3
percent against a basket of currencies to 95.979. The
dollar index has lost around 2 percent since mid-December and
remains near a three-month low of 95.638 reached on Monday.
    Dollar sentiment, however, has been bolstered by optimism
about a possible U.S.-China trade agreement.
    U.S. Commerce Secretary Wilbur Ross said on Monday there was
a good chance Beijing and Washington would reach a trade deal
that "we could live with."
    Against the yen, the dollar was little changed at 108.70 yen
    Federal Reserve Chairman Jerome Powell said on Friday the
Fed is not on a preset path of rate hikes and will be sensitive
to the downside risks markets are pricing in.
    The prospect of no further rate increases is likely to keep
the dollar under pressure, analysts said.
    Still, the lack of a compelling alternative to the greenback
has helped slow currency moves to the downside, Western Union's
Manimbo said.
    The British pound traded down 0.5 percent at
$1.2720 and traders expect the currency to remain volatile over
the next few weeks.
    British Prime Minister Theresa May must win a vote in
Parliament next week to approve her government's Brexit
agreement or risk seeing Britain's exit from the European Union
descend into chaos.
    Currency bid prices at 10:35AM (1535 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
 Euro/Dollar      EUR=        $1.1433        $1.1474     -0.36%         -0.33%      +1.1485     +1.1422
 Dollar/Yen       JPY=        108.7500       108.7000    +0.05%         -1.37%      +109.0800   +108.5200
 Euro/Yen         EURJPY=     124.33         124.73      -0.32%         -1.50%      +124.8600   +124.2500
 Dollar/Swiss     CHF=        0.9816         0.9795      +0.21%         +0.02%      +0.9834     +0.9790
 Sterling/Dollar  GBP=        1.2716         1.2778      -0.49%         -0.32%      +1.2796     +1.2713
 Dollar/Canadian  CAD=        1.3302         1.3296      +0.05%         -2.46%      +1.3310     +1.3267
 Australian/Doll  AUD=        0.7120         0.7147      -0.38%         +1.01%      +0.7149     +0.7117
 Euro/Swiss       EURCHF=     1.1224         1.1239      -0.13%         -0.27%      +1.1251     +1.1220
 Euro/Sterling    EURGBP=     0.8988         0.8978      +0.11%         +0.04%      +0.8991     +0.8949
 NZ               NZD=        0.6710         0.6751      -0.61%         -0.12%      +0.6758     +0.6709
 Dollar/Norway    NOK=        8.5622         8.5295      +0.38%         -0.89%      +8.5672     +8.5246
 Euro/Norway      EURNOK=     9.7906         9.7897      +0.01%         -1.17%      +9.7955     +9.7620
 Dollar/Sweden    SEK=        8.9302         8.8945      +0.03%         -0.37%      +8.9362     +8.8778
 Euro/Sweden      EURSEK=     10.2100        10.2070     +0.03%         -0.53%      +10.2151    +10.1730
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Tom Finn in London; Editing by Dan Grebler)
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