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By Rika Otsuka
TOKYO, May 26 (Reuters) - The dollar steadied near one-month
lows against a basket of major currencies on Monday after falling
late last week on concerns that surging oil prices could further
slow the U.S. economy and add to inflation pressures.
The New Zealand dollar held firm against its U.S.
counterpart, underpinned by its high yield despite
worse-than-expected trade data that dented the kiwi briefly
earlier in the session.
Trading in Asia was subdued, with many investors retreating
to the sidelines as U.S. and U.K. financial markets are closed
for national holidays on Monday.
"If oil prices start to soar again, to $150 or $170, that
could hurt U.S. stocks as well as the dollar," said Kosuke Hanao,
head of forex sales at HSBC.
"What factors the market might trade on next remains to be
seen, but the dollar is difficult to buy given the cloudy outlook
for the economy," he added.
With crude oil climbing above $135 a barrel last week,
markets have priced out the chance of another Fed interest rate
cut in 2008 and now see a rate rise by the end of the year,
though some believe an increase may be difficult at a time when
the world's biggest economy is facing slower growth.
The Fed, which downgraded its 2008 economic growth forecast
and raised its inflation outlook last week, is expected to halt
its run of rate cuts to bolster the country's growth after
slashing rates by 3.25 percentage points since last September to
the current 2 percent.
"The dollar continues to stay on a downward trend with many
players just looking for a chance to sell it," said Tsutomu Soma,
senior manager of foreign assets at Okasan Securities.
The dollar index was little changed on the day at 72.005
<.DXY>, within sight of one-month lows of 71.823 struck last
week.
The euro was at $1.5759 <EUR=>, flat from late U.S. trading
on Friday. It hit all-time highs above $1.60 last month.
The dollar steadied against the Japanese currency at 103.30
yen <JPY=> after a fall in Tokyo stocks prompted investors to
unwind risky carry trades, pushing it to the day's low of 103.13
yen on trading platform EBS.
In carry trades, low-yielding currencies such as the yen are
used to finance purchases of assets offering higher returns
elsewhere.
The Nikkei stock average <> was down 2 percent in
afternoon trade.
U.S. crude <CLc1> rose 71 cents to $132.90, after soaring to
a record high of $135.09 last week.
The New Zealand dollar rose 0.2 percent to $0.7863 <NZD=D4>,
recovering from a dip to the day's low around $0.7830 in early
trade on an April trade deficit that was more than double
expectations.
DATA, FED ON RADAR
Investors awaited a raft of U.S. data and speeches from top
Fed officials, including chairman Ben Bernanke on Thursday, for
more clues about the direction of rates.
The personal consumption expenditures index for April is due
on Friday. It includes the core PCE price index, which excludes
food and energy costs and is one of the Fed's favourite measures
of inflation.
Other key economic reports due this week include the National
Association of Purchasing Management-Chicago business barometer
for May, and April new home sales.
The market will also pay close attention to euro zone data,
including the region's consumer inflation figures on Friday.
Solid data last week from the region's largest economy,
Germany, supported speculation that the European Central Bank
could lift rates.
"The euro will be easily boosted by any strong euro zone data
that further raise expectations for an ECB rate rise," said Tohru
Sasaki, chief forex strategist at JPMorgan Chase Bank.
The ECB has held rates at 4 percent since last June. The
market is pricing in the possibility of a rate rise by the end of
the year.
(Additional reporting by Satomi Noguchi, Editing by Brent
Kininmont)
