Dollar steadies against euro before US inflation data

LONDON (AFP) - The dollar held steady against the euro but dipped against the yen on Wednesday, as dealers awaited key US inflation data amid growing concerns about the country's struggling auto industry.

In morning London trading, the euro was unchanged at 1.2621 dollars from late in New York on Tuesday.

Against the Japanese currency, the dollar fell to 96.77 yen from 96.89 yen on Tuesday.

Later on Wednesday, all eyes will be on US consumer price index (CPI) inflation data for October, alongside fresh numbers on the troubled housing sector.

"The US Consumer Price Index is expected to have plunged 0.8 percent during the month of October, which would mark the sharpest drop since 1949 and bring down the annual measure to a five-month low of 4.0 percent," said Commerzbank analyst Antje Praefcke.

"Will this raise doubts about further Fed rate cuts? Probably not, since housing starts and building permits will once more show a very weak reading."

Calyon analyst David Keeble said the inflation reading would have a muted impact on the interest rate outlook because they already stand at a historic low.

"On the data front, the biggest release will be US CPI, but with the Fed rate only at 1.0 percent and likely to drop we must ask whether a low or high CPI can really be much of an influence on the Fed's decisions here," Keeble said.

Last month, the Fed slashed its key lending rate by a half-point to 1.0 percent, matching a historic low for American borrowing costs, in the latest action to ease a credit crisis that is strangling the US economy.

Slower inflation would give the Federal Reserve more room to lower US interest rates even further to try to ward off a deep recession.

Meanwhile, markets were closely watching developments in the car sector as the heads of the Big Three US automakers -- General Motors, Ford and Chrysler -- appeal to Congress for loans to prevent their industry from collapsing.

Treasury Secretary Henry Paulson had on Tuesday indicated unwillingness to allocate funds from a financial sector bailout to the manufacturing sector.

"The troubled US automotive industry poses a large economic and potentially systemic risk, so a lack of a rescue plan is bad news for risky assets in the near term," Barclays Capital analysts said in a research note on Wednesday.

Elsewhere, the British pound was steady on news that Bank of England policymakers voted 9-0 to slash British interest rates by a third to 3.00 percent earlier this month, according to minutes of their meeting.

The BoE had on November 6 slashed its key lending rate from 4.5 percent to the lowest level in more than half a century, a sign according to economists of a deep recession ahead for Britain.

In foreign exchange trade on Wednesday, the euro changed hands at 1.2621 dollars against 1.2621 dollars late on Tuesday, at 121.98 yen (122.32), 0.8425 pounds (0.8432) and 1.5221 Swiss francs (1.5181).

The dollar stood at 96.77 yen (96.89) and 1.2076 Swiss francs (1.2026).

The pound was at 1.4962 dollars (1.4963).

On the London Bullion Market, the price of gold eased to 737.44 dollars an ounce from 738 dollars late on Tuesday.