By Chikako Mogi
TOKYO, May 23 (Reuters) - The dollar steadied on Friday as
oil prices eased on profit-taking after hitting fresh record
highs, but the currency stayed in sight of a one-month low
against the euro on worries that inflation could lead to a deeper
U.S. slowdown.
The dollar tends to move in the opposite direction to oil,
and it took a hit on Thursday as oil jumped above $135 <CLc1> for
the first time, fuelling concerns about the U.S. economy just as
the Federal Reserve is expected to halt its run of interest rate
cuts to bolster the country's growth.
The euro held its ground, partly because recent solid data
from the euro zone's largest economy, Germany, nurtured
speculation that the European Central Bank was more likely to
raise rates than cut after keeping them at 4 percent this week.
The yen came under pressure as rising energy prices would
also hurt Japan's growth, which is showing signs of softening.
"The dollar is getting support as oil prices take a breather,
but it remains vulnerable given concerns about inflation dragging
down growth," said a senior dealer at a European bank.
"There is no reason to buy the yen either, leaving the euro
with the most upside. But currencies are likely to stay in ranges
as the market lacks convincing factors to set a clear direction,"
he said.
The euro was little changed from late U.S. trade at $1.5726
<EUR=> after rising to a one-month high above $1.5800 on
Thursday.
Solid stock markets may spur risk-taking and prompt investors
into carry trades, where they use low-yielding currencies such as
the yen to buy higher-yielding assets and currencies, undermining
the Japanese unit, traders said.
The dollar was up nearly 0.1 percent at 104.12 yen <JPY=>,
after slipping below 103 yen the previous day. Traders said the
dollar was supported by buying from Japanese retail investors and
importers but resistance was firm around 105 yen due to Japanese
exporter selling.
The single currency was little changed against the yen at
163.74 yen <EURJPY=>.
The Nikkei stock average <> was up 0.5 percent.
The rise in bond yields around the globe on inflation
concerns also highlights how low Japanese interest rates are,
further reducing incentives to buy yen, a dealer at a U.S.
securities firm said.
The Bank of Japan kept interest rates steady at 0.5 percent
earlier this week and is expected to hold them until global
economic prospects become clearer. BOJ Governor Masaaki Shirakawa
said the downside risks to the global economy remained high.
U.S. crude <CLc1> ended Thursday down $2.36 at $130.81 after
soaring to a record high of $135.09.
Earlier this week, the Fed downgraded its 2008 U.S. economic
growth forecast and raised its inflation outlook.
The Fed has cut interest rates to 2 percent from 5.25 percent
since September, but markets now expect the central bank to hold
steady and possibly raise rates by the end of the year.
Traders said they were waiting for a U.S. report on existing
home sales due on Friday as well as crude oil moves for clues on
the dollar's direction.
"As the dollar lacks direction, the focus will be on crude if
home sales data comes in weak as expected," said Tomoko Fujii,
Bank of America's head of economics and strategy for Japan.
"Crude oil rises will continue to hurt the dollar as they
boost U.S. import costs while it helps the euro by making the ECB
more vigilant on inflation."
(Additional reporting by Tetsushi Kajimoto; Editing by Hugh
Lawson)
