By Satomi Noguchi
TOKYO, Jan 10 (Reuters) - The dollar held near a nine-month
high against sterling on Thursday on rising expectations that the
Bank of England will cut interest rates later in the day amid
growing concerns about Britain's economic outlook.
The yen edged up from overnight lows against the dollar as
Tokyo shares slid 1 percent and kept investors cautious of
holding risky positions such as carry trades.
Sterling was knocked lower on Wednesday after Marks & Spencer
<MKS.L>, Britain's largest clothing retailer, reported
unexpectedly weak fourth-quarter sales, stirring talk that weak
consumption could lead to a sharp economic slowdown.
Investors see a roughly 60 percent chance the BoE will cut
interest rates on Thursday, up from about a 30 percent chance
priced in at the end of last week, amid concerns the United
States will slide into recession, dragging down growth in both
Britain and the euro zone. []
"The expectations for a BoE rate cut grew further after
concerns for the U.K.'s retail sector deepened overnight and the
pound was hit," currency analysts at JPMorgan Chase Bank said.
"So if the BoE holds rates steady as we expect, the pound
could rebound at least in the short term," they said in a
research note to clients.
JPMorgan sees the BoE leaving borrowing costs at 5.5 percent
at the end of its two-day meeting later on Thursday, while it
expects the European Central Bank to keep rates steady at 4.0
percent on Thursday, as do a majority in the market.
Sterling dipped slightly from late U.S. trade to $1.9561
<GBP=D4>, near a nine-month low of $1.9554 hit in the previous
session. The pound was down 0.2 percent at 214.62 yen <GBPJPY=>,
in sight of a five-month low of 213.45 yen hit on Friday.
The Australian dollar rose 0.1 percent against the dollar to
$0.8830 <AUD=D4>, helped in part by news that Australia's trade
deficit narrowed more than expected in November.
The Aussie was supported by growing expectations of a rise in
Australian interest rates next month given the strength of
domestic data, in contrast with mounting views for looser
monetary policy in Britain and the United States.
The dollar slipped 0.1 percent against the yen to 109.72 yen
<JPY=>, stepping back from Wednesday's high of 110.13 yen on
electronic trading platform EBS as traders trim positions in
carry trades.
In carry trades, investors borrow low-yielding currencies
like the yen to fund investment in higher-yielding assets. But
such risky trades tend to be unwound when stock markets slump and
market volatility rises.
The Nikkei average <> shed 1 percent, tracking a broad
retreat in Asian equity markets.
"The dollar is likely to trade between 108 yen and 113 yen
for the rest of the month, and 110 yen is about the centre of
that range," said Hideaki Inoue, chief manager of forex trading
at Mitsubishi UFJ Trust Bank.
The euro edged up to $1.4680 <EUR=>, above a one-week low of
$1.4639 hit the previous day.
Traders said the euro looked vulnerable in the near term as
investors have started to focus on a potential slowdown in the
eurozone after gloomy German industrial output and retail data.
Caution ahead of Thursday's speech by Federal Reserve
Chairman Ben Bernanke on the U.S. economy was also keeping
currencies confined to tight ranges.
(Editing by Michael Watson)
