(Changes dateline, byline, adds quotes, updates prices)
By Simon Falush
LONDON, Jan 14 (Reuters) - The dollar slid to to 1-1/2 month
low versus both the yen and the euro on Monday, with investors
continuing to take a bearish stance on the U.S. economy and
expecting a sharp cut in interest rates this month to further
erode the currency's appeal.
The Federal Reserve is widely seen cutting rates in January
by a half-point to 3.75 percent, and futures are pricing in the
risk of a Fed rate cut even before its two-day meeting ending on
Jan. 30 in a bid to boost an ailing economy.
That would erode the dollar's yield appeal, bringing
interest rates below those of the euro zone, where policymakers
continue to sound a hawkish note on future monetary policy.
"(Dollar weakness) is primarily a function of the fact that
the outlook on the U.S. economy is in doubt leading to fears of
a global slowdown. As long as this is the case the dollar is
going to be under pressure," said Teis Knuthsen, head of FX
research at Danske Markets in Copenhagen.
By 0909 GMT, the euro had risen as high as $1.4884 according
to Reuters data, its highest in seven weeks and less than a cent
below record highs struck last November <EUR=>.
The dollar fell as low as 107.79 yen <JPY=> by 0913 GMT,
with a trader saying the move down was accelerated by the break
through stop-loss level around 107.86 yen.
Traders cited a report from hedge fund advisory Medley
Global Advisors that the Fed could cut rates as early as this
week as stirring some of the speculation about a rare move
between scheduled meetings.
But the Wall Street Journal reported on Monday that the Fed
was unlikely to cut rates before that meeting unless the outlook
deteriorated sharply in coming days. []
The Australian dollar jumped after data showing rising
inflation pressures and solid demand for workers reinforced
expectations interest rates could rise next month from 6.75
percent, attracting yield-seeking investors.
The Australian dollar climbed 0.6 percent to $0.8968 <AUD=>.
It also got a boost as gold prices scaled a record peak just
below $900 an ounce <XAU=>.
Currency trading in Asia was limited, with financial markets
in Japan closed for a holiday.
EYES ON BANK RESULTS
A raft of U.S. data this week will show how the economy is
faring, including retail sales, industrial production, housing
and consumer prices.
But analysts said that how Wall Street reacts to earnings
results from U.S. banks this week may be more important for
higher-yielding currencies and carry trades.
Merrill and Citigroup, among the hardest hit by the U.S.
subprime mortgage defaults and the resulting credit crisis, will
release quarterly results this week.
The Financial Times said that Citi is seeking up to $14
billion more in capital, while Merrill may secure about $4
billion of cash.
That follows a report in the New York Times on Friday that
Merrill's write-downs on mortgages could total $15 billion,
which spurred selling of stocks and higher-yielding currencies.
"The economic outlook looks far from bright as U.S.
corporates and the Fed signal significant downside risks to the
economy," said BNP Paribas in a note to clients.
(Reporting by Simon Falush; Editing by Mike Peacock)
