Dollar drifts sideways ahead of Fed meeting
TOKYO (Reuters) - The dollar dipped against the yen but was mostly steady on Wednesday as investors looked to see if the Federal Reserve would give any signals to back up market expectations for an interest rate cut later in the year.
The yen posted broad gains as investors took profits on carry trades -- using the low-yielding Japanese currency to fund purchases of higher-yielding currencies and assets -- before this week's string of central bank meetings.
The Fed is widely expected to keep rates on hold at 5.25 percent on Wednesday, and many analysts believe the central bank will emphasize in its post-meeting statement that worries about inflation pressures outweigh the economy's housing-led slowdown.
At its last meeting in March, the Fed removed an explicit reference to possibly tightening policy further and acknowledged that economic indicators had been mixed but said price pressures remained the biggest policy concern.
"It's hard for them to say anything new with regard to the mixed data coming out," said Sharada Selvanathan, a currency strategist at BNP Paribas in Singapore.
Selvanathan said the market reaction was likely to be muted but the dollar would remain under pressure as other central banks stand poised to jack up rates further, luring funds to currencies such as the euro and pound.
The dollar retreated to 119.81 yen down slightly from near 120.00 yen in late New York trade the previous day and holding below a two-month high of 120.47 yen hit last week.
The euro dipped to 162.30 yen from near 162.50 yen, pulling back from the record high of 163.60 yen also hit last week.
Both the Australian and New Zealand dollars slipped 0.3 percent against the Japanese currency as carry trades were trimmed back.
Some traders said Japanese investors were selling dollars to bring home funds tied to some $55 billion of U.S. Treasuries maturing next Tuesday as well as $22 billion of coupon payments.
The single European currency was flat at $1.3544 holding off the lifetime high of $1.3683 struck in late April.
DOLLAR SLIDE PAUSES
Strategists at Morgan Stanley say dollar selling may be at "a saturation point" and that any further signs of a rebound in growth should give the U.S. currency a boost.
Mixed U.S. data in the past week has shown employment gains in April slowing to the weakest in two years even as factory activity, one of the economy's soft spots, rebounded last month.
The dollar's trade-weighted index against six major currencies has clawed up from a two-year low of 81.251 hit last week to as high as 82.036 this week. The index was little changed at 81.926 Continued...
