* Euro off 1-1/2 week low vs dlr, up slightly on day
* Stg on back foot after dovish BoE inflation report
* Dollar index down 0.1 pct at 79.093 <.DXY>
* FOMC decision at 1815 GMT awaited
(Recasts, updates prices, adds quotes)
By Ian Chua
LONDON, Aug 12 (Reuters) - The dollar slipped from a 1-1/2
week high against the euro on Wednesday and struggled versus the
yen in a choppy session as investors kept a cautious footing
ahead of the outcome of the Federal Reserve's policy meeting.
Global shares <.MIWD00000PUS> eased 0.2 percent, albeit well
off early lows, while European government bond prices rose,
indicating waning risk appetite ahead of the U.S. central bank's
rate decision at 1815 GMT.
But sterling <GBP=> stayed under pressure after the Bank of
England's quarterly inflation report suggested that markets were
pricing in rate hikes too early.
"Choppy is the word ... everything is rangy but jumping in
those ranges," said Stuart Bennett, senior forex strategist at
Calyon in London, adding uncertainty about what the Fed might
say was keeping markets directionless.
The euro fell to a 1-1/2 week low against the dollar at
around $1.4087 <EUR=> before recovering to be up 0.2 percent on
the day at $1.4165 by 1052 GMT, but the common currency was
slightly lower against the yen at 135.75 yen <EURJPY=R>.
The dollar also eased against the Japanese currency to 95.82
yen <JPY=>, after earlier reaching around 95.10, the lowest
level this week. Against a basket of major currencies, the
dollar <.DXY> was a touch weaker at 79.093.
There was little reaction to euro zone industrial production
data, which unexpectedly fell 0.6 percent in June against
forecasts of a 0.3 percent gain. []
Meanwhile, sterling wallowed near a two-week low at $1.6391
<GBP=D4> following the Bank of England's quarterly Inflation
Report.
The BoE said British inflation will be well below the 2
percent target in two years if interest rates were to be lifted
in the first quarter, suggesting markets are too early in
pricing in rate hikes. []
"If you look at the Bank of England's projections
mechanically, they'd appear to suggest no increase in rates for
quite some time," said Philip Shaw, chief economist at Investec.
"In that respect the (market) reaction was quite
understandable but it's very early to suggest that policy is
going to remain on hold for a very long time given we've seen
some strengthening in some of the key economic indicators."
Also on the back foot, the Australian dollar <AUD=> fell 0.7
percent against the U.S. dollar to $0.8241.
The Fed is expected to keep U.S. interest rates steady at
near zero at a meeting that concludes on Wednesday, but the
focus is on whether the central bank will end its programme of
buying long-term government securities amid signs the economy is
stabilising from a deep recession.
"The market is currently pricing in a 50 percent probability
that the first rate hike will take place at the end of Jan. 10
and Fed comments pointing towards a later date could be
short-term dollar negative," said analysts at Commerzbank.
Ahead of the Fed, Norway's central bank will make a rate
announcement at 1200 GMT. Key interest rates are widely expected
to remain at a record low 1.25 percent.
(Additional reporting by Tamawa Desai; Editing by Victoria
Main)
