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By Simon Falush
LONDON, Nov 1 (Reuters) - The dollar recovered from a record low against the euro on Thursday after the Federal Reserve cut rates as expected the previous day but dampened expectations of further monetary policy easing this year.
The Fed said inflation risks were equal to the possibility of slower growth, prompting the fed futures market to cut bets on a December rate cut to as low as a 40 percent chance.
"People are not as confident as they were that there will be a December rate cut from the Fed," said Derek Halpenny, currency economist at BTM UFJ.
"It has taken the steam out of the appetite for selling the dollar and as long as data isn't weak it will strengthen the idea that the Fed won't cut in the near term."
The Fed trimmed rates by 25 basis points to 4.5 percent on Wednesday on top of a half-point slash in September as the central bank tries to counter the effect of housing market problems on the overall economy.
At 0851 GMT, the euro had slipped 0.3 percent to $1.4435 <EUR=> after having vaulted above $1.45 after the rate cut for the first time in its nearly nine-year life.
The dollar was up a third of a percent versus the yen at 115.68 <JPY=>, around two-week highs.
Trading is likely to be relatively subdued as many European countries mark All Saints Day with a day off.
MORE DOLLAR WEAKNESS TO COME?
In a Reuters poll after the decision, most economists at primary bond dealers predicted the Fed would keep rates on hold at its meetings in December and January. [FED/R]
"Near-term the dollar may enjoy moderate support, with polls showing most primary dealers see rates on hold in December. However, we believe ongoing weak U.S. data may force the Fed's hand before year-end," said ING in a note to clients.
Investors will look to September core personal consumption expenditure data at 1230 GMT and the Institute for Supply Management's October manufacturing index at 1400 GMT as well as October non-farm payrolls data on Friday for further clues on whether the Fed will need to cut rates again this year.
But with major economies mostly weathering the U.S. slowdown, some central banks are poised to hold rates steady or in some cases, such as Australia, raise them further as steep commodity prices keep inflation pressures on the boil.
Oil prices scaled record peaks above $96 a barrel (CLc1: Quote, Profile, Research) on Thursday, while gold prices came within a whisker of the psychologically key level of $800 per ounce last seen in 1980.
Nonetheless, commodity currencies succumbed to the broad trend of dollar strength. The greenback edged up versus the Canadian currency to C$0.9447 <CAD=> after slumping to levels last seen in the late 1800s the previous day.