* Dollar index hovers near lowest in nearly 2 weeks
* Recent weakness of U.S. data weighs on dollar
* Euro seen capped by expectations of ECB rate cut
By Masayuki Kitano and Ian Chua
SINGAPORE/SYDNEY, April 30 The dollar hovered
near its lowest level in roughly two weeks against a basket of
currencies on Tuesday as declining bond yields and slowing
inflation put pressure on the Federal Reserve for more action.
Undermining the dollar was a slide in the two-year Treasury
yield to a nine-month trough of 0.21 percent as low
readings on inflation led some market players to bet on more
stimulus from major central banks.
The dollar index last traded at 82.189, not far from
a low of 82.035 touched on Monday, its lowest level since April
The Fed kicks off its two-day meeting later in the day and
markets are watching to see if a sluggish economic recovery
and a slowdown in inflation could not only end talk of tapering
bond buying but actually push the central bank into buying more.
"Given the underlying inflation trends, we believe attention
should shift to the potential for further accommodation, which
may involve increasing the monthly pace of purchases, holding
securities for longer or modifying the forward guidance,"
analysts at Barclays Capital wrote in a note.
The Fed is currently buying $85 billion of debt a month and
the talk had been of when it might start to scale back. However,
a string of soft data has changed the conversation. See
"Talk that (the Fed's) QE might end this year seems to be
receding somewhat, due to the recent weakness of economic data,"
said a trader for a Japanese bank in Tokyo, referring to the
Fed's bond-buying programme.
The dollar edged up 0.2 percent to 97.94 yen. The
greenback had slipped to as low as 97.35 yen on Monday, its
lowest level in almost two weeks.
The euro slipped 0.1 percent to $1.3088, giving back
a bit of the gains it made on Monday, when the single currency
rose 0.5 percent after Italy formed a government and ended two
months of political uncertainty.
Italian benchmark borrowing costs fell to their lowest since
October 2010 at an auction on Monday, after Italy's new prime
minister, center-left politician Enrico Letta, named a coalition
government on Saturday.
The euro, however still remains some way off this month's
high near $1.3200, and further gains may be limited ahead of a
European Central Bank policy meeting on Thursday.
A majority of economists polled by Reuters expect the ECB to
cut interest rates by 25 basis points to 0.5 percent. A separate
Reuters poll of money market dealers showed that they were
evenly split on whether the ECB will cut rates on Thursday.
Markets will be keeping a close eye on German consumer
sentiment, retail sales and employment data due later on
Tuesday. German inflation data on Monday has already surprised
on the downside.