By Olga Cotaga
LONDON (Reuters) - The euro was hovering on Friday around the seven-week high it reached against the U.S. dollar on Thursday as 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 (DE:CBKG).
Moreover, expectations that the Federal Reserve may cut interest rates at the Oct. 30 meeting added further optimism, given that this would shrink yield differentials between the United States and euro area.
"The fed looks more willing to cut" in the immediate term, said Praefcke.
The euro was last trading flat at $1.1122 (EUR=EBS), not far from $1.1140, its highest since Aug. 26.
The index which tracks the dollar against six major currencies was also last flat at $97.581 (DXY).
The pound was slightly weaker, down 0.2% at $1.2865, but 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.
Traders worry that an 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.
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 7.0828 against the dollar.
Elsewhere, the Norwegian krone was very close to breaking the all-time low of 10.2215 it plunged to against the euro on Thursday, last trading flat at 10.2105. (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.