Wednesday February 20, 2008 - 12:08:59 GMT
Reuters - www.reuters.com
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FOREX-Dollar steady ahead of U.S. data, Fed minutes
LONDON, Feb 20 (Reuters) - The dollar steadied on Wednesday ahead of U.S. inflation data and minutes from the Federal Reserve that will be closely watched for signs on whether expected further rate cuts will be delivered.
The yen had earlier risen across the board as a fresh raft of bad news from the financial sector sparked a sell-off in equity markets and re-ignited risk aversion.
But moves were relatively muted and the gains were soon erased as investors turned their attention to interest rate differentials and how economic data will affect U.S. monetary policy.
Official U.S. consumer price data for January are expected to show inflation easing slightly on the month but edging up on the year with the core measure of underlying inflation steady on a monthly and annual basis.
"The risk is that if CPI is on the strong side it will raise questions about whether the Fed can deliver the cuts that the market is pricing in," said Chris Turner, head of FX strategy at ING.
"This would be negative for equities and positive for the yen ... though the dollar could gain against higher yielding currencies."
The yen tends to gain when stocks fall as investors move out of relatively risky carry positions where they borrow the Japanese unit to fund higher yielding investments.
The yen earlier benefited as Asian and European equities fell after KKR Financial Holdings, the listed affiliate of private equity group Kohlberg Kravis Roberts & Co [KKR.UL], said on Tuesday it had delayed repayment of notes backed by mortgage backed securities for a second time.
At 1107 GMT the dollar was up 0.1 percent at 107.88 yen <JPY=>, while the euro was steady at 158.66 yen <EURJPY=>.
The euro inched down 0.1 percent to $1.4709 <EUR=>.
The Norwegian crown -- the currency of the world's fifth-largest oil exporter -- fell 0.7 percent versus the dollar <NOK=> as oil prices retreated from Tuesday's record highs above $100.
RATES IN FOCUS
The U.S. central bank's outlook on rates has been closely monitored after it chopped the fed funds rate by a total of 125 basis points last month.
Investors will closely scrutinise minutes from the Federal Reserve from its Jan. 29-30 policy meeting when it cut rates half a percentage point following an unprecedented inter-meeting cut of 75 basis points the previous week.
Some analysts have said the threat of oil stoking higher inflation could complicate the Fed's rate-cutting campaign. The Fed is expected to slash rates by another half-point from the current 3.0 percent next month.
Sterling <GBP=>, meanwhile, fell following the release of minutes of the Bank of England's Feb. 6-7 meeting when it cut rates to 5.25 percent which showed that one policymaker voted for a more aggressive 50 basis point easing.
However losses were limited as investors are cautious about the extent to which the BoE will cut rates in the future.
"The BoE continues to warn that, firstly, it is in no hurry to cut rates again given the likelihood of a near-term inflation spike and, secondly, that the market should not expect a dramatic series of rate cuts either," said Bank of America in a note to clients. (editing by David Christian-Edwards)
© Reuters 2008 All rights reserved
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