LONDON, Dec 10: The dollar dipped against the euro and yen on Monday on the eve of a key US interest rate decision. In late European trading, the euro rose to $1.4706 from $1.4656 late on Friday in New York.

The dollar rose to 111.72 yen from 111.65 late on Friday.

Market players were awaiting a Federal Reserve meeting on Tuesday when the US central bank was expected to cut its key interest rate by at least 25 basis points from the current level of 4.5 per cent, dealers said.

It would be the third cut to the benchmark fed funds rate since September in response to the credit squeeze that has roiled world markets in recent months.

While most analysts predict a quarter-point cut as the most likely outcome thanks to last week’s robust non-farm payrolls data and some stronger than expected housing data on Monday, a 50-point cut remains possible as the Fed tries to fend off signs of a severe economic slowdown.

Ashraf Laidi at CMC Markets said the dollar could well benefit from a quarter-point cut.

“A less generous easing will likely disappoint a shaky stock market, and curtail risk appetite. Renewed selling in equities will weigh on higher yielding currencies, particularly the Aussie dollar and sterling ... a resulting rally in the US dollar is also likely to be fuelled by a resulting pull back in gold to as low as $780 per ounce,” he said.

On the other hand, the US currency’s losses would deepen in the event of a half-point cut, he said.

“A 50 basis-point rate cut would be a positive surprise for risk appetite and is likely to boost US equities at the expense of the dollar, which would sustain a bigger erosion in its yield foundation,” Laidi said.

Markets will be playing close attention to the Fed’s post-meeting statement and comments, particularly on the ongoing credit market woes.—AFP