By Masayuki Kitano
TOKYO, April 16 (Reuters) - The dollar slipped against the
yen on Wednesday, hurt by caution ahead of quarterly earnings
announcements by major U.S. banks and worries about the turmoil
in credit markets.
Selling by Japanese exporters also pressured the dollar,
while the euro fell against the yen partly on selling by Japanese
institutional investors, traders said.
The dollar steadied against the euro, clinging to gains made
on Tuesday after data showed that U.S. producer prices climbed a
faster-than-expected 1.1 percent in March, while a gauge of New
York manufacturing activity rose in April. []
Such data prompted investors to scale back expectations for
the Federal Reserve to lower interest rates sharply at a policy
meeting this month, and triggered some buybacks in the dollar,
although market players remained cautious about its outlook.
"It seems premature to think that the dollar's decline will
come to an end just because of yesterday's data," said Masafumi
Yamamoto, head of foreign exchange strategy in Japan for Royal
Bank of Scotland.
The dollar slipped 0.1 percent from late U.S. trading on
Tuesday to 101.70 yen <JPY=>.
The market reacted to little to Bank of Japan Governor
Masaaki Shirakawa's comment on Wednesday that foreign exchange
rates should reflect economic fundamentals. []
The euro fell 0.1 percent to 160.60 yen <EURJPY=R>. It
steadied against the dollar at $1.5795 <EUR=>, having pulled back
from a record high of $1.5915 hit last Thursday.
Traders said the yen got a lift from a Wall Street Journal
article saying that Merrill Lynch would announce fresh asset
writedowns of $6 billion to $8 billion when it announces its
quarterly earnings on Thursday. The report in the WSJ's online
edition cited a person familiar with the matter. []
BANK EARNINGS EYED
Worries about financial institutions' losses from the credit
market turmoil tend to hurt investor risk appetite and trigger
unwinding of carry trades.
In such trades, investors sell the low-yielding yen to buy
higher-yielding currencies.
Dogged by concerns about the U.S. economy, the dollar had
fallen earlier in the week, even though last week's Group of
Seven statement contained the most explicit expression of concern
about volatility in major currencies in seven years.
Later on Wednesday, investors will turn their attention to
the U.S. consumer price index for March as well as data on
housing starts and industrial output. []
U.S. interest rate futures show that investors see a roughly
80 percent chance of the Fed lowering rates by 25 basis points
from the current 2.25 percent at its April 29-30 policy meeting,
compared with a 20 percent chance of a 50 basis point cut.
Sterling stood at 80.49 pence per euro <EURGBP=D4>, hovering
near a record low of 80.65 pence struck on Tuesday.
"Market players are trading euro/sterling, which can move
more than the dollar/yen and euro/dollar pairs, both of which are
rangebound at the moment," said a senior trader at a big Japanese
bank.
The pound dipped as low as $1.9600 <GBP=D4>, matching a
two-month low hit on Tuesday, but later trimmed its losses to
stand at $1.9620.
Sterling retreated on Tuesday after a fall in a key house
price index to a 30-year low suggested the downturn in Britain's
housing market is quickening.
The pound was also stung by a fall in UK retail sales and a
surprisingly steady reading for consumer prices.
The price figures suggested UK inflation may be calming,
raising expectations that the Bank of England could keep lowering
rates after cutting them by 25 basis points to 5 percent last
week.
(Additional reporting by Rika Otsuka; Editing by Hugh Lawson)
