Wednesday August 6, 11:56 AM
Dollar mixed on eve of eurozone rate decision
LONDON (AFP) - The dollar rose against the yen but slid against the euro on Wednesday, the eve of an interest rate decision by the European Central Bank.
In late morning London trading, the European single currency firmed to 1.5476 dollars from 1.5454 in New York late on Tuesday.
Against the Japanese currency, the dollar firmed to 108.41 yen from 108.36 after hitting a seven-week high in earlier Asian trade.
Markets expect the ECB to keep its key lending rate unchanged at 4.25 percent on Thursday as it weighs concerns about both inflation and weak economic growth.
"Investors are waiting to see whether the ECB will recognise the downside risks to growth... or continue to focus on inflation," said Resona Bank analyst Shigeru Nakane.
If the European Central Bank softened its anti-inflation rhetoric or highlighted risks to economic growth, that could signal that the central bank was set to hold off raising rates in the near term, he said.
The ECB governing council, which does not normally meet in August, must weigh record inflation of 4.1 percent against signs that the 15-nation economy is weakening rapidly and might even be headed into a recession.
The Bank (TBHS - news) of England was also expected to stand pat on Thursday, although analysts see a small chance of a rate rise to try to contain inflation.
On Tuesday, the US Federal Reserve held American borrowing costs at 2.0 percent and noted continued risks to growth.
Analysts nonetheless are not predicting that the Fed will increase its federal funds rate soon and say this could temper the dollar's recent rise, especially as eurozone rates remain elevated.
"Markets responded to the announcement by slightly reducing the probability of Fed tightening over the next few months," said Barclays Capital analyst David Woo.
The US currency was also propelled higher against the yen by weakening crude oil prices, dealers said.
Crude prices have now slumped by 20 percent since hitting record highs above 147 dollars on July 11.
In London trade on Wednesday, the euro changed hands at 1.5476 dollars against 1.5454 late on Tuesday, at 167.77 yen (167.46), 0.7926 pounds (0.7906) and 1.6287 Swiss francs (1.6294).
The dollar stood at 108.41 yen (108.36) and 1.0527 Swiss francs (1.0541).
The pound was at 1.9528 dollars (1.9545).
On the London Bullion Market, the price of gold rose to 884.49 dollars per ounce from 882 dollars late on Tuesday.
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