(Recasts, changes byline, dateline; previous LONDON, updates
prices, adds quote)
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 9 (Reuters) - The dollar rebounded on
Wednesday on technical buying, but a speech by the Federal
Reserve chief and key central bank meetings on Thursday
confined trading to tight ranges.
Sterling hit a record low against the euro and a nine-month
trough against the dollar as renewed fears about the British
retail sector stoked expectations of a UK interest rate cut.
Overall, currency investors remained focused on the U.S.
equity market, typically a barometer of risk aversion. Wall
Street is off to its worst start in history as investors fear
the U.S. economy is sliding into a recession.
The S&P 500 has fallen more than 5 percent for its poorest
showing in the first five days of a year dating back to the
index's launch in 1926, according to Reuters data.
"Certainly equity markets will drive currencies today."
said Adam Fazio, currency strategist at CIBC World Markets in
New York.
He added that price action in the market has been confined
to narrow ranges ahead of key events this week. "In dollar/yen,
110 remains a big level and we were never able to get through
that."
In early New York trading, the dollar was up 0.3 percent
against a basket of six major currencies at 76.302 <.DXY>, in
large part thanks to a 0.3 percent rise against the yen to
109.23 yen <JPY=>, pulling away from a six-week low of 107.86
yen on Friday, according to Reuters data.
Traders covered their short dollar positions ahead of a
speech by Fed chief Ben Bernanke on Thursday.
It will be Bernanke's first public remarks on the economy
this year. Recent grim U.S. manufacturing and employment data
have intensified the threat of recession and likelihood the Fed
will cut rates by half a percentage point later this month.
"If the dollar can't weaken on dovish or pessimistic
comments from Bernanke, then I think that would be a very
important price signal," said Paul Mackel, senior currency
strategist at HSBC in London.
"You should be cautious about getting overly short the
dollar at current levels. Maybe short-term dollar positions are
(ripe) for squeezing."
The euro was down 0.2 percent against the dollar at $1.4676
<EUR=>, but was up almost 0.4 percent against the UK pound at
74.86 pence <EURGBP=>, having reached a record post-1999 launch
peak of 74.99 pence.
Sterling fell 0.6 percent against the dollar to $1.9602
<GBP=>, trading as low as $1.9587, a low not seen since late
March.
Sterling was hit after Marks & Spencer <MKS.L>, Britain's
largest clothing retailer, reported much weaker than expected
sales during the final three months of last year, sending its
shares plummeting as much as 20 percent.
UK rate futures tilted toward pricing a 60 percent chance
from around 50-50 that the Bank of England will cut rates a
quarter point to 5.25 percent on Thursday.
The European Central Bank will also hold a monetary policy
meeting on Thursday, although markets expect the central bank
to hold interest rates steady at 4.0 percent. Still, markets
will be closely watching comments from ECB President
Jean-Claude Trichet, given a spate of weak economic euro zone
numbers.
In the United States, markets are pricing in as much as a
70 percent chance that the Fed will slash interest rates by a
hefty half-point later this month to 3.75 percent. They see
rates down to 3 percent or lower by the end of the year.
(Additional reporting by Jamie McGeever in London; Editing by
Tom Hals)
