By Olga Cotaga
LONDON, Oct 18 (Reuters) - The euro was hovering on Friday around the seven-week high it reached against the U.S. dollar on Thursday, amid hopes that a Brexit deal between Britain and the European Union could prevent an economic recession in the euro zone.
The common currency has been rattled this year by dismal manufacturing data, as well as by worries that deepening economic tensions between the United States and China could make euro zone economies grow even slower.
But with Britain's Prime Minister Boris Johnson and EU leaders agreeing a new deal for Britain to exit the bloc, and with U.S.-China tensions easing, the euro was enjoying a sigh of relief.
"Without Brexit, the euro might be now liberated from this burden," said Antje Praefcke, a forex analyst at Commerzbank.
Expectations that the Federal Reserve may cut interest rates at its next meeting added further optimism, given that this would shrink yield differentials between the United States and euro area.
Money markets are pricing in an 82% chance of a cut at the Oct. 30 meeting, Refinitiv data shows.
"The Fed looks more willing to cut" in the immediate term, said Praefcke.
The euro was last trading flat at $1.1129 EUR=EBS, not far from $1.1140, its highest since Aug. 26.
The current account surplus of the 19 countries sharing the euro widened to 27 billion euros in August from 22 billion euros a month earlier, data from the European Central Bank showed on Friday, but this did not have an impact on the euro.
The index which tracks the dollar against six major currencies was also last flat at 97.536.DXY.
The pound, last neutral at $1.2892, was still very close to the five-month high of $1.2988 it reached on Thursday after the U.K. and the EU agreed to a Brexit deal. Euro/sterling was also flat at 86.32 pence EURGBP=D3.
Traders worry that initial relief at securing the long-awaited Brexit deal could be brief, however, because the prime minister still needs to sell the agreement to sceptical lawmakers when parliament sits on Saturday.
BNP Paribas analysts expect the pound to rise to $1.33 if a deal is agreed on Saturday. But sterling may pare its recent gains if a deal is rejected, "although the market may be quick to fade any sterling pullback, with bullish sentiment remaining entrenched," BNP Paribas analysts said.
The yuan held steady against the dollar after data showed China's economy grew at the weakest pace in more than 27 years in the third quarter due to a costly trade war with the United States and weak factory production.
In the offshore market, the yuan was last neutral at 7.0865 against the dollar. CNH=EBS
Elsewhere, the Norwegian krone broke another all-time low of 10.2335 against the euro and was last trading down 0.1% at 10.2285. EURNOK=D3
Analysts were scratching their heads why the krone was so weak, saying one possible explanation could be the weak demand for Norwegian equities.
"Historically the NOK has often traded weak towards the end of the year, but our FX analysts are struggling to find the flows that explain this seasonal weakness," said SEB analysts in a note to clients.
World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Reporting by Olga Cotaga Editing by Peter Graff, William Maclean)
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