* Dollar retreats from 2-1/2-month high ahead of Fed
* Euro holds above $1.45 support
* U.S. consumer price data shows modest rise in November
* Markets watching for any mention of Fed policy exit
(Updates prices, adds detail on Citi exiting euro short)
By Steven C. Johnson
NEW YORK, Dec 16 (Reuters) - The U.S. dollar fell on
Wednesday ahead of a Federal Reserve meeting and after data
showing tame inflation last month suggested the U.S. central
bank need not rush to lift interest rates from record lows
That helped the euro bounce off a 2-1/2-month low hit a day
ago, with traders buying the currency after it failed to break
below $1.45. For more on the U.S. data, see [].
Most analysts expect the Fed to stick to its pledge to keep
interest rates near zero for an "extended period" when it
issues a post-meeting statement today, around 1:15 pm (1915
GMT) suggesting no rate hike until well into next year.
A run of strong U.S. data lately raised speculation the Fed
could hike rates sooner than expected, a move that would boost
the value of dollar-based assets.
"I don't think the Fed will want to say too much that rocks
the boat at this time of the year," said Firas Askari, head of
FX trading at BMO Capital Markets in Toronto. "The recent
dollar bounce on strong U.S. data is interesting and perhaps
means markets are taking a longer view, but I don't think rates
are going to be touched until next summer."
The euro <EUR=> was up 0.3 percent at $1.4576 after sliding
to around $1.4512 earlier. The euro fell as low as $1.4503 on
Tuesday, its weakest since early October.
Concern about some parts of the euro zone banking sector
and sovereign creditworthiness this week may have overshot,
aiding the euro's rebound back toward $1.46, said Michael Hart,
strategist at Citigroup in London.
The euro's failure to test key support around $1.4480
prompted Citigroup strategists to take profits on short euro
trades, the bank said in a research note. It added that higher
gold and oil prices should spark short-term dollar weakness.
The euro showed limited reaction to the European Central
Bank's final one-year liquidity operation at which banks
borrowed 97 billion euros.
AUSSIE DOWN, STERLING RALLIES
The dollar index was down 0.4 percent at 76.695 <.DXY>,
slipping from the 2 1/2-month high of 77.092 the previous day.
Against the yen, it was unchanged at 89.60 yen <JPY=>, pulling
away from the day's low around 89.40 yen.
The dollar has lost more than 5 percent against a basket of
currencies this year on the view that other central banks will
raise rates before the Fed does.
The Australian dollar <AUD=D4> fell 0.6 percent at $0.9003
after Australia's gross domestic product grew by 0.2 percent in
the third quarter, less than forecast, while dovish central
bank remarks prompted investors to trim expectations for
tightening next year. []
Australia has lifted its cash rate 75 basis points in just
3 months.
Sterling rallied after a surprisingly strong UK employment
report suggested the British economy was on the mend. The pound
was up 0.6 percent at $1.6376 <GBP=> and the euro fell through
key 100-day moving average technical support at 89.25 pence to
trade at 88.96 pence <EURGBP=>.
Norway's crown hit a three-week high against the euro
<EURNOK=> and rose sharply against the dollar <NOK=> after the
Norges Bank lifted interest rates for the second time in three
months. [].
The Fed, meanwhile, "is likely to tweak the statement to
note that conditions in financial markets have improved
modestly since the last meeting," Barclays analysts said in a
note. "But the broader message should remain that the Fed does
not expect to change its policy stance soon."
(Additional reporting by Jamie McGeever and Naomi Tajitsu in
London; editing by Andrew Hay)
