(Updates prices, adds quotes, byline)
By Kevin Plumberg
NEW YORK, Jan 29 (Reuters) - The dollar edged up against
the euro and yen on Tuesday after a mixed bag of U.S. economic
data led dealers to trim their bets against the currency ahead
of Wednesday's policy decision by the Federal Reserve.
Higher-than-expected readings of consumer confidence and
orders for long-lasting durable goods put a floor under the
dollar and caused interest rate futures to reflect a slightly
lower chance that the Fed will significantly lower its
benchmark interest rate this week.
Another report showed widespread gloom in the U.S. housing
sector, but that familiar story was absorbed easily by the
market.
"This is not the kind of data recessions are made of and
highlights how important employment is going to be in
determining whether the economy can sneak by with a growth
recession (growth where unemployment rises) or something much
less benign," said Alan Ruskin, chief international strategist
with RBS Greenwich Capital in Greenwich, Connecticut. "Net-net
positive dollar data."
The euro slipped to $1.4760 <EUR=>, down 0.1 percent from
late Monday. Prior to Tuesday, the dollar had fallen against
the euro in four out of the last five trading days after the
Fed startled markets by slashing its benchmark rate by 75 basis
points to 3.5 percent in an emergency move last week.
After the durables data, the dollar rose to an intraday
high of 107.23 yen <JPY=> before easing back to 107.10 yen, up
0.2 percent.
Against the Swiss franc <CHF=>, the dollar climbed to a
session high of 1.0961 francs, and then inched back to 1.0942
francs, up 0.5 percent.
50 OR BUST?
Interest rate futures reflect a roughly three-in-five
chance the Fed will cut by 50 basis points after its scheduled
meeting, which would bring the federal funds rate down to 3
percent, a full percentage point below the euro zone benchmark
rate and among the lowest in the industrialized world.
A lower yield would presumably make the dollar a less
attractive currency in which to hold investments.
If the Fed cuts by 50 basis points, the cumulative 125
basis points of easing would be the biggest move in a two-week
span since the U.S. central bank began using the fed funds rate
as its primary policy tool in the early 1990s.
If such a cut is accompanied with more relatively positive
U.S. economic data, investors could stampede back in the market
hunting for higher-yielding, higher risk investments, said Mark
Frey, head trader with Custom House, a currency services firm
in Victoria, British Columbia.
"The carry trade will be back in vogue and the U.S. dollar
will likely struggle, especially against the euro and the
commodity currencies," Frey said.
Dealers and investors would like to see what the Fed, in
the statement accompanying its policy decision, has to say
about the risks ahead for economic growth -- especially with
fourth quarter U.S. gross domestic product data and the January
employment report due later this week.
Until then, however, many market participants are playing a
waiting game.
"For the time being it looks like the market really doesn't
want to do anything ahead of the FOMC," said Boris Schlossberg,
senior currency strategist with DailyFX.com in New York.
(Additional reporting by Lucia Mutikani; editing by Gary
Crosse)
