LONDON, Nov 16: The dollar weakened against the euro here on Friday on economic data from Washington, notably on industrial output, that painted a bleak picture of the US economy.

The single European currency in late-day trade was at $1.4649 against $1.4609 late Thursday in New York.

The dollar was meanwhile trading at 111.09 yen, up from 110.26 on Thursday.

Fears of a sharp slowdown in US growth are raising expectations the Federal Reserve will cut interest rates again, possibly as early as December, although inflation remains stubbornly high and could stay the Fed’s hand for now.

But while economic fears may push the dollar lower, its function as a reserve currency gives it strength at times of risk aversion, thus limiting its losses in the face of poor US data.

US industrial production fell 0.5 per cent in October, its first drop in five months and the largest decline since January of this year. Analysts had expected a modest increase.

Paul Ashworth, economist at Capital Economics, said the poor reading “confirms that the short-lived recovery in the factory sector is now well and truly over.”

The US capital flow balance in September showed a surplus of $26.4 billion, rebounding from a deficit of more than $70 billion in August but staying well short of market expectations of a $70 billion surplus.

Further pressure on the dollar could come from the Gulf states, where a group of six oil-rich countries, the Gulf Co-operation Council, looks set to unpeg their currencies from the US unit in the coming weeks.

Elsewhere, the euro continued to strengthen against the pound, briefly hitting a new high of $0.7170 as markets readjust their expectations for interest rates in Britain and the eurozone.

The Bank of England’s dovish report on inflation this week and a warning on house prices are stoking expectations for British rates to fall in the months to come.

In European trade Friday, the euro changed hands at $1.4649, against $1.4609 late on Thursday, at 162.78 yen (161.10), 0.7153 pounds (0.7143) and 1.6381 Swiss francs (1.6401).

The dollar stood at 111.09 (110.26) and 1.1175 Swiss francs (1.1222).

The pound was at $2.0481 ($2.0448).

In London, the price of gold dropped to $789.75 per ounce from $794 late on Thursday.—AFP