FOREX-Dollar drifts lower on US rate outlook; sterling up

(Changes byline, dateline; previous LONDON, adds quotes, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 21 (Reuters) - The dollar slipped on Thursday, still weighed down by minutes from the Federal Reserve's January policy meeting, which affirmed expectations of further U.S. interest rate cuts.

Markets have priced in the risk of another half percentage point rate cut at the Fed's March meeting, which would further erode the dollar's appeal to global investors. The perceived chances of a 50 basis point easing stood at 82 percent on Thursday, slightly down from previous sessions after data on Wednesday showed accelerating U.S. inflation. FEDWATCH

In Britain, stronger-than-expected UK retail sales data gave sterling a boost as investors scaled back the likely extent of interest rate easing by the Bank of England this year.

In contrast, the Fed said in its minutes on Wednesday that it was worried the U.S. economy would face further setbacks even after a series of aggressive rate cuts and sharply lowered its forecast for U.S. growth in 2008.

"The market is in a consolidation mode since the dovish Fed minutes, although the dollar is still weaker," said Shane Enright, a currency strategist at CIBC World Markets in Toronto.

"Moves overnight have been reasonably minor and markets are awaiting fresh news for direction," he added.

In early Mew York trading, the dollar was down nearly 0.2 percent against a basket of major currencies at 75.959 .DXY. The euro edged up against the dollar to $1.4739 <EUR=>.