FOREX-Euro steadier as rate cut hopes ease, yen up

(Changes byline, adds comments)

By Ian Chua

LONDON Feb 11 (Reuters) - The euro steadied on Monday from its biggest weekly slide in 1-1/2 years versus the dollar, benefiting from hawkish policymaker comments, while the yen rose broadly as investors cut back on risky trades.

European Central Bank President Jean-Claude Trichet stressed on Saturday that there was no call to move rates up or down at last week's policy meeting, while Governing Council member Axel Weber told a German newspaper the ECB had not relaxed its view on inflation risks. [ID:nT81373] and [ID:nL11686641]

"The market is interpreting that as no rate cuts being on the agenda for the time being and euro is a bit firmer because of that," said David Pais, currency strategist at Citigroup.

Another positive for the euro came from comments by OPEC Secretary General Abdullah al-Badri over the weekend that OPEC may switch to pricing oil in euros rather than dollars.

By 1130 GMT, the euro was up 0.3 percent against the dollar at $1.4560 EUR= on the day, steadier after last week's 2-percent slide -- the biggest weekly decline in 1-1/2 years.

The euro had been hit last week by growing expectations that the ECB was opening the door for future monetary easing after the central bank's policy statement dropped wording about pre-emptive action against inflation while warning of downside growth risks.

Still, money markets are pricing in nearly 100 basis points of ECB easing by year-end FEIZ8.

Against the yen, the euro slipped 0.2 percent to 155.46 yen EURJPY=, while the dollar fell 0.6 percent to 106.77 yen JPY=.

The Japanese currency was supported by a risk averse mood as worries about global growth, highlighted at the weekend's G7 meeting, and falling equity markets encouraged investors to exit risky bets funded by cheap borrowing in the yen.

G7 finance leaders said the crumbling U.S. housing market had wounded the world economy and conditions may worsen as debt-laden banks clamp down on credit. [ID:nT262281]

But the language on currencies was largely a repeat of the previous statement, with the G7 saying exchange rates should reflect economic fundamentals. They tweaked comments on China's yuan to say "we encourage" the need for greater appreciation of the currency, instead of "we stress".

HAWKISH RBA, UK INFLATION

Among some of the best performing major currencies was the Australian dollar, which hit one-week highs versus the dollar after the country's central bank warned it would likely need to raise interest rates again to restrain quickening inflation. [ID:nSYD296294]

The Aussie dollar AUD= rose nearly 1 percent to $0.9051 as investors bet the next rate rise will occur as soon as the March central bank meeting. Just last week, the Reserve Bank of Australia (RBA) lifted rates to an 11-year peak of 7 percent.

Also at uncomfortable levels was British factory gate inflation, which rose in January to its highest rate in more than 16 years, while input price inflation hit a record high.

Sterling reversed early losses to be up 0.2 percent at $1.9501 GBP= in the wake of the data as investors pared rate cut expectations from the Bank of England.

"For a market which is aggressively priced for future easing, this will make for uncomfortable reading and rate cut expectations will need to be pared back," said Daragh Maher, senior FX strategist at Calyon, in a report.

Maher said sterling might have performed even better if not for a separate report showing Britain's trade deficit with the rest of the world was worse than expected in December at 7.574 billion pounds. (Editing by Mike Peacock)