* Euro steadies before ECB rate decision
* ECB seen keeping rates at 2%
* BoE seen likely to cut rates by 50 bps to 1%
By Masayuki Kitano
TOKYO, Feb 5 (Reuters) - The euro steadied against the dollar
on Thursday, after falling sharply the previous day due to a
downgrade of Russia's sovereign rating, as investors awaited a
rate decision by the European Central Bank.
The euro came under heavy pressure on Wednesday after Fitch
Ratings downgraded Russia's sovereign rating, underscoring
worries that a sharp downturn in Eastern Europe could hit the
euro zone economy hard. []
The euro was also hurt by Kazakhstan's central bank's
decision to devalue the Central Asian country's tenge currency
<KZT=> by about 18 percent on Wednesday. []
"Heightening worries about economies and currencies in
eastern and central Europe such as Russia and Kazakhstan tend to
spur euro selling and yen buying," said Masafumi Yamamoto, head
of foreign exchange strategy in Japan for the Royal Bank of
Scotland, in a research note.
The euro is likely to stay weak against the yen, he added.
The euro was little changed from late U.S. trading on
Wednesday at $1.2844 <EUR=>. It slid more than 1.4 percent on
Wednesday, basically erasing the gains it had made on Tuesday.
Market players are reluctant to hold onto positions over a
long time period and have tended to close out positions
relatively quickly, said a trader for a Japanese trust bank,
adding that the environment was not ripe for taking risks.
The euro has fallen roughly 8 percent so far this year, and a
fall below $1.2706 on trading platform EBS would take the single
European currency to a two-month low.
Against the Japanese currency, the euro fell 0.2 percent to
114.56 yen <EURJPY=R>.
The dollar eased 0.2 percent to 89.22 yen <JPY=>.
LOOMING RATE DECISIONS
The ECB is widely expected to keep interest rates at 2.0
percent when it announces its rate decision later on Thursday,
with most market players expecting the central bank to lower
rates by 50 basis points in March. []
Market players will be watching for any hints from ECB
President Jean-Claude Trichet that the ECB may slow the pace of
future easing, after more than halving the key euro zone rate in
the last four months.
"The euro's upside will likely remain capped as the ECB is
seen lowering rates even if the central bank keeps rates
unchanged this time," said Nobuaki Kubo, vice president at BBH
Investment Services.
Given the euro zone's economic woes and decline in inflation,
market expectations for the ECB to lower rates are likely to
linger, traders said.
Data released last week showed that euro zone inflation
plunged in January to the lowest in nearly 10 years, with
consumer prices rising 1.1 percent year-on-year, down from 1.6
percent in December. []
Sterling dipped 0.2 percent to $1.4442 <GBP=D4> before the
Bank of England's rate decision later on Thursday. The BoE is
seen likely to cut rates by 50 basis points to a fresh record low
of 1.0 percent. []
Market players will look for any hints on how far the BoE
will lower rates in coming months while also focusing on any
chance the central bank will use other measures, including
quantitative easing, traders said.
The New Zealand dollar rose 0.2 percent to $0.5085 <NZD=D4>,
boosted by better-than-expected jobs data.
New Zealand's employment rose 0.9 percent in the fourth
quarter, better than market expectations for a 0.7 percent drop.
The jobless rate hit a five-year high of 4.6 percent but was a
tad below market expectations for 4.7 percent. []
[]
(Additional reporting by Kaori Kaneko; Editing by Brent
Kininmont)
