Tuesday May 15, 2007 - 10:36:25 GMT
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FOREX NEWS-Major currencies steady before U.S. CPI data
FOREX-Major currencies steady before U.S. CPI data
Tue May 15, 2007 6:08 AM ET
(Updates price, adds quotes, changes byline)
By Natsuko Waki
LONDON, May 15 (Reuters) - Major currencies held steady on Tuesday as investors awaited U.S. inflation data to see if it backs up expectations of a Federal Reserve interest rate cut, which would lessen the dollar's yield appeal.
The yen hit a three-month low against the dollar after weak Japanese machinery orders data reinforced expectations the Bank of Japan would raise interest rates only gradually.
With all eyes on the U.S. data, the euro failed to gain from figures showing the euro zone economy grew a stronger-than-expected 3.1 percent year-on-year in the first quarter.
This compares with U.S. Q1 growth of 1.3 percent and also cemented expectations the European Central Bank will raise interest rates next month -- a view fully priced in the market.
"(Euro zone GDP) was a little higher than expected but we need to think about what will happen going forward. We have almost close to 2 (25 basis points rate hikes) priced in," said Laura Ambroseno, currency strategist at Morgan Stanley.
U.S. April core consumer prices, due at 1230 GMT, which exclude food and energy costs, are expected to have risen 0.2 percent in April.
"You have to get a fairly strong figure than market expectations to give near-term support for the dollar. You are starting to see soft growth more definitely bottoming out in the Q2. It's not out of the woods but the idea is that it's not going to get worse," Ambroseno said.
By 0945 GMT, the euro was steady at $1.3539 , up from a one-month low around $1.3461 hit last week.
The dollar was steady at 120.45 yen after hitting a three-month high of 120.58.
The euro was up slightly on the day at 163.11 yen , having hit a record high of 163.62 yen this month.
Sterling slipped after data showed consumer price inflation slowed in April, in line with forecasts.
Later in the U.S. session, Federal Reserve Chairman Ben Bernanke is due to speak although he is not taking questions.
The New York Fed's manufacturing survey and U.S. Treasury capital flows data are also due.
JAPAN AND RATES
Japan's core machinery orders fell 4.5 percent in March from the previous month, well short of market expectations for a 1.3 percent rise and raising doubts about the strength of capital spending that has helped underpin growth in the past year.
The BOJ is expected to leave interest rates unchanged on Thursday but many expect solid Japanese first-quarter growth data this week to confirm the economy's steady expansion and keep the BOJ on track to raise rates from 0.50 percent in the third quarter.
Still, Japan's yields remain low and this has prompted domestic investors to shift more funds into foreign assets and a wide array of market players to use the yen to fund purchases of higher-yielding currencies and assets in the carry trade.
"The market is fairly confident that the BOJ are simply not in a position to talk rehetoric that is signalling rate hikes when they meet on Thursday," Derek Halpenny, currency economist at UFJ-BOTM.
(Additional reporting by Veronica Brown)
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