(Updates prices, adds quote, changes byline, dateline;
previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 28 (Reuters) - The euro slipped against the
dollar on Monday, losing a bit of momentum after an earlier
rally sparked by comments from European Central Bank officials
repeating their warnings about persistent inflation.
Analysts said trading was choppy this morning with price
action having little conviction, adding that they expect
currencies to stray little from current trading ranges ahead of
a key Federal Reserve interest rate decision on Wednesday.
On Monday, ECB President Jean-Claude Trichet and Governing
Council member Yves Mersch both said risks to price stability
remained on the upside, with Trichet adding that there were no
grounds for complacency.
Their comments suggested the ECB is not ready to start
cutting interest rates from 4 percent soon, even with regional
data pointing to a likely negative monthly reading on German
inflation for April.
A surprise jump in a German consumer sentiment gauge
[] had also helped the euro overnight, suggesting
the euro zone's biggest economy may be in better shape than
indicated by last week's weak Ifo business confidence survey.
"We had a relatively strong reading in German consumer
confidence and that helped ease concerns about a faltering
German economy following last week's disappointing Ifo number,"
said Omer Esiner, a market analyst at Ruesch International in
Washington.
"I think there were some hawkish comments by Trichet and
also by Mersch and that sort of underpinned the euro a little
bit. Finally, there is also a bit of profit-taking in the
dollar after its nice rally last week," he added.
In early New York trading, the euro was flat at $1.5609,
though still more than 3 cents below last week's record high
<EUR=>.
Meanwhile, rising commodity prices -- with oil hitting a
new record high <CLc1> -- kept the dollar on the back foot.
FED SHIFT?
The euro's gains versus the dollar were capped, however, by
speculation the Fed could indicate it may be approaching the
end of its cycle of drastic interest rates on Wednesday, after
delivering one more quarter-point cut to 2 percent.
Such bets helped the dollar hit a two-month high of 104.82
yen <JPY=>. It last traded at 104.62 yen.
Ashraf Laidi, chief analyst at CMC Markets in New York,
thinks Wednesday's decision by the Federal Reserve Open Market
Committee may "signal the Fed's intention to pause its 8-month
long easing campaign."
"Rather than stating its intention to bring an end to the
rate cuts, the FOMC will likely communicate a change of tack by
making a reference to stabilizing market conditions, leading
market participants to expect a reduction in the easing
momentum," he added.
The Fed has slashed borrowing costs by 3 percentage points
since September in response to the credit crisis that erupted
last year, but some speculate that climbing fuel and food
prices could put the brakes on any more big cuts.
U.S. short-term interest rates futures are even indicating
a 16 percent chance the Fed may hold rates at 2.25 percent this
week <FEDWATCH>, rather than cut them.
(Editing by Chizu Nomiyama)
