Wednesday August 12, 2009 - 10:32:16 GMT
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Reuters - www.reuters.com
FOREX NEWS -Dlr steady ahead of Fed; stg falls before BoE
* Euro hits 1-1/2 week low, stg falls to 2-wk low vs dlr
* Dollar index up 0.1 pct at 79.252 .DXY
* China stocks fall, prompting investors to cut yen shorts
* BoE Inflation Report, FOMC decision awaited
(Recasts, adds quotes, prices, changes dateline, pvs TOKYO)
By Tamawa Desai
LONDON, Aug 12 (Reuters) - The dollar steadied against other major currencies apart from the yen on Wednesday as market participants pulled back from riskier assets before the U.S. Federal Reserve's policy decision later in the day.
Global shares fell, oil prices dipped below $70 and government bond prices rose as markets fretted that recent speculation of higher U.S. interest rates may be overdone.
But analysts said the dollar's gains may be tempered.
"Unless the Fed delivers a markedly upbeat statement that can bring forward tightening expectations, or starts to detail exit strategy tools, it looks as though the dollar will struggle to build on recent gains," said Chris Turner, head of FX strategy at ING.
Markets showed little reaction to euro zone industrial production data, which unexpectedly fell 0.6 percent in June against forecasts of a 0.3 percent gain. [ID:nLC145627]
By 0909 GMT, the euro fell 0.1 percent to $1.4128 after dipping to a 1-1/2 week low against the dollar of $1.4087 EUR= while the common currency also fell more than one percent against the yen at 134.10 yen EURJPY=R.
Sterling dropped to a two-week low against the dollar ahead of the Bank of England's quarterly Inflation Report and subsequent news conference, which are expected to shed further light on the central bank's surprise decision last week to boost its quantitative easing programme.
The Japanese currency was also higher against the dollar.
The dollar was down 0.3 percent at 95.65 yen after falling as low as 95.13 yen JPY=.
Falling Chinese stocks dented demand for riskier currencies and prompted investors to cut long positions in higher-yielding currencies such as the Australian dollar.
The Australian dollar fell more than 1.0 percent against the U.S. dollar and almost 2.0 percent against the yen before paring some losses. It was last down 0.7 percent at $0.8232 and 1.0 percent lower against the yen at 78.66 yen AUDJPY=R.
Sterling was down 0.1 percent to $1.4132 after falling to $1.6391 GBP=D4.
It showed little reaction to British unemployment hitting its highest rate since 1996 in the three months to June, and the number of people claiming jobless benefit rose broadly as expected in July. [ID:nONS004429]
The Fed is expected to keep U.S. interest rates steady at near zero at a meeting that concludes on Wednesday, but end its long-term government securities buying program amid signs the economy is stabilising from a deep recession.
Policymakers will steer a careful course in acknowledging signs that a turnaround may be near without triggering expectations that interest rate rises are imminent. The Fed's policy statement is expected at 1815 GMT.
"The market is currently pricing in a 50 percent probability that the first rate hike will take place at the end of Jan. 10 and Fed comments pointing towards a later date could be short-term dollar negative," said analysts at Commerzbank.
Norway's central bank also makes a rate announcement at 1200 GMT. Key interest rates are widely expected to remain at a record low 1.25 percent.
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