LONDON (AFX) - Leading currencies were stuck in tight ranges against each other in early trade ahead of interest rate decisions in the euro zone and the UK with the public holiday in the US further subduing activity, dealers said.
The euro continued to hover in the mid 0.84 usd mark with opinion still divided over the outcome of the European Central Bank's interest rate decision tomorrow.
While ECB president Wim Duisenberg quelled speculation when he said there was nothing new to warrant lower rates, residual hopes remain, Paul Bednarczyk, economist at 4CAST said.
"It does not look like there will be a rate cut but aside from Friday's US non-farm payrolls, there is little to add to momentum," he said.
The ECB's position right now is tricky. If it does cut rates tomorrow, markets will attach even less credibility to remarks from the bank's officials. On the other hand, if rates stay, any impact would have already been discounted. Either way the single currency appears to be stuck in range trading, he said.
The market's biggest fear is that high interest rates amid a slowdown will stifle growth, potentially dragging the euro into a downward spiral. Some watchers are even talking about a drift down to historical lows -- around the 0.82 usd level, Bednarczyk said. A favourable reading in the euro zone services PMI came as no surprise as it had been foreshadowed by individual country data. Bednarczyk termed it the positive news as a rare occurrence amid a sea of gloom but Steve Pearson, economist at Halifax, said it may well be the start of better readings ahead.
In any case, the services PMI reading will be the final nail against the case for an ECB rate cut, Pearson said.
The yen remained between 124 and 125 to the dollar, making little headway amid the US holiday despite reassurances from Japanese prime minister Junichiro Koizumi that there will no conscious effort to weaken the yen.
But there was a hint of discord working against the yen when a high ranking finance ministry official was reported to have said just the opposite.
Sterling was steady, benefiting from yet another indication that domestic demand continues to be robust.
Halifax's house price index, which showed UK house prices rising a seasonally adjusted 1.6 pct on the month and 9.7 pct from a year ago, echoed Nationwide's survey yesterday.
Against this backdrop, the Bank of England is widely expected to keep rates stable when it decides tomorrow.