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British Pound, Euro Rally

The greenback was falling against the euro and the pound Tuesday as stock markets around the globe rose and attention turned toward Federal Reserve interest rate policies.

Euros were selling for $1.424, up from $1.4164 late Monday. British pounds were buying $2.0484, rallying from $2.0311 in the last session.

"Right now the focus is shifting to what the Fed will do next week," says Axel Merk, Manager of the (MERKX) Merk Hard Currency Fund , in Palo Alto, Calif.

The Fed will hold a two-day policy meeting Oct. 30-31 and will decide whether it wants to cut the cost of borrowing again following a half-point reduction in September.

Such a move would likely weaken the dollar relative to other currencies, and so traders try to keep a close watch on shifting market sentiment.

"I think the Fed is clearly on a course to inject liquidity into the financial system at any cost, which is bad for the U.S. dollar," Merk adds, meaning he thinks that sooner or later the monetary authority will decide to cut benchmark short-term rates.

Also impacting the foreign-exchange market was poor economic data out of the U.K., which may have capped the pound's rally somewhat.

Elsewhere in the foreign-exchange markets, the dollar was fetching 114.47 Japanese yen, up from 114.3 yen previously.

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