U.S. Dollar Little Changed Before Fed's Interest-Rate Decision

By Lukanyo Mnyanda

Sept. 18 (Bloomberg) -- The dollar was little changed before the Federal Reserve announces its interest-rate decision today, which investors expect will result in the first reduction in four years.

The U.S. currency erased losses versus the euro and yen as investors pared bets on a 50 basis-point cut to support economic growth, which has been curbed by a recession in the housing market. The central bank will probably limit its cut, the first since June 2003, to 25 basis points, according to the median prediction of 134 economists surveyed by Bloomberg.

``If we do see less than the 50 basis points some people are expecting, we might see some benefit for the dollar,'' said Mitul Kotecha, head of currency strategy at Calyon in London. ``There's a significant minority looking for a 50-point move.''

The dollar traded at 115.16 yen at 6:58 a.m. in New York, from as low as 114.8, and from 115.12 late yesterday. It was at $1.3865 per euro, from $1.3867. The dollar has recouped some of its losses against the European common currency after reaching a record low of $1.3927 on Sept. 13.

Interest-rate futures show a 50 percent chance of a cut to 4.75 percent, down from 76 percent odds a week earlier. Twenty- three of the forecasters surveyed by Bloomberg projected a half- point move.

The Labor Department is scheduled to release U.S. producer prices for August before the Fed's decision. Economists predict a 0.3 percent decrease in wholesale prices following a 0.6 percent July gain, based on the median of 76 estimates in a Bloomberg News survey. So-called core costs, which exclude food and energy, probably increased 0.1 percent for a second month.

The report will be released at 8:30 a.m. local time in Washington.

Yen Recoils

The yen, which had earlier advanced against the 16 major currencies, reversed its gains against all but four today as the Bank of England made additional funds available to banks in London. That prompted investors to resume buying riskier assets. The Japanese currency fell the most against the South African rand and Brazilian real.

Sterling rose briefly after the Bank of England made 4.4 billion pounds ($8.8 billion) of additional funds available at its benchmark interest rate of 5.75 percent. It then fell against the euro and the dollar, reaching a year-low on the trade- weighted index of 102.3. The U.K. currency traded at $1.9912, from $1.9947 yesterday and at 69.64 pence per euro, from 69.53 pence.

The euro barely moved against the dollar after the ZEW Center for European Economic Research said investor sentiment fell to a nine-month low in September, as traders focused on the Fed's decision.

Investor Sentiment

The ZEW's index of investor and analyst expectations declined more than forecast to minus 18.1 in September, from minus 6.9 percent in August. The institute also said there was a risk the U.S. subprime mortgage crisis could affect the German economy, Europe's biggest, and noted that the strong euro would curb exports.

Traders increased bets on the European Central Bank raising interest rates after Bank of Spain Governor Miguel Angel Fernandez Ordonez, a member of the ECB's governing council, said in testimony to Parliament in Madrid there was still a risk inflation may accelerate.

The implied rate on the three-month Euribor futures contract for December rose 2 basis points to 4.48 percent. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB key rate since 1999. A basis point is 0.01 percentage point.

German Finance Minister Peer Steinbrueck attends a meeting of the Franco-German Finance and Economy Council today.

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