FOREX-Dollar slips vs euro as ECB rate clues awaited
TOKYO, Jan 11 (Reuters) - The dollar slipped from six-week highs against the euro on Thursday as investors trimmed positions and waited for clues from European Central Bank President Jean-Claude Trichet on whether interest rates could rise further in February.
The ECB is widely seen holding rates steady at 3.5 percent after the meeting, but many are looking for another rate increase in the first quarter and possibly as soon as next month.
Market players will look to see if Trichet uses the word "vigilance" to describe the ECB's policy stance, his previous signal of a pending rate increase, at his post-meeting news conference starting at 1330 GMT.
"Investors would like to see some hawkishness from Trichet," said Sharada Selvanathan, currency strategist at BNP Paribas in Singapore.
"I don't think the dollar support is going to wane so quickly, so a euro/dollar move higher will very much depend on what Trichet says.
The U.S. currency jumped on Wednesday after data showed the country's trade deficit unexpectedly shrank to $58.2 billion in November, the smallest since July 2005.
The improvement in the trade gap suggested slightly less dependence on foreign capital to cover the U.S. shortfall and a boost to overall economic growth from exports in the fourth quarter.
Combined with receding expectations for a Federal Reserve rate reduction this year that would erode the dollar's yield advantage, the U.S. currency has rebounded from its roughly 10 percent slide against the euro in 2006.
The Bank of England also is meeting on policy and is seen leaving rates steady at 5.0 percent.
The dollar edged up to 119.70 yen JPY= from near 119.65 yen in late New York trade, with traders saying Japanese exporters and other market players have large orders to sell the U.S. currency lined up towards 120 yen.
The dollar rose as high as 119.88 yen last year and is approaching the 2005 peak of 121.40 yen, the highest for the U.S. currency since March 2003.
The euro climbed to $1.2957 EUR= after falling as low as $1.2931 in the previous session, its weakest since Nov. 23.
Against the yen, the single currency gained 0.25 percent to 155.15 yen EURJPY=R, clawing back towards the all-time high of 158.06 yen struck earlier this month.
The market showed little initial reaction to the yuan strengthening beyond the Hong Kong dollar's 7.8 parity rate to the U.S. dollar for the first time. The yuan climbed to a peak of 7.7953 per U.S. dollar CNY=CFXS.
"the move is nothing more than numerical, and talk of a break of the HKD-USD peg in favour of monetary union with the Chinese yuan will not be fulfilled for at least several years," Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, said in a note to clients. Continued...
