Dollar steadies in London

The dollar held steady against the euro on Friday, with currencies stuck in ranges ahead of much-awaited US PCE inflation data later in the session and a long weekend in the United States and Britain.
After tumbling last week to one-year lows against the euro and sterling and eight-month troughs versus the yen, the dollar enjoyed a respite this week thanks to investor caution over a global sell-off in emerging markets, stocks and commodities.
The spike in volatility has made many wary of taking big positions in currencies for now, while the dollar and US Treasuries have benefited from investors withdrawing funds from riskier assets.
UBS said its risk index edged down to 1.1 from 1.49, but still remained in extremely risk averse territory, which should be supportive for safe-haven currencies such as the Swiss franc.
With holidays due on Monday in both the United States and Britain and after Thursday's Ascension Day holidays in much of Europe, market players had more reason to cover short positions.
"It's as though the long weekend has already started," said David Bloom, currency strategist at HSBC. "The only thing that could light the blue touchpaper is the PCE out of the States.
At 1124 GMT, the euro held steady against the dollar at $1.2816. On a trade-weighted basis, which is monitored by the ECB, the euro was at 103.85, off Thursday's one-year peak at 104.27.
The Swiss franc was a touch firmer on the day versus the greenback at 1.2157 francs.
The yen was about 0.1 percent down versus the dollar at 111.91 yen and a fifth of a percent down against the euro at 143.41 yen, with some investors disappointed after core Japanese CPI failed to come in above expectations.
For more clues on whether the Federal Reserve hikes rates at its June policy meeting from the current 5 percent, traders were looking to the US core personal consumption expenditures (PCE) index, the inflation gauge most closely watched by the Fed.
"Core CPI inflation came in a tenth of a percent higher than expectations (in April). It's adding to these inflation fears that people have been speaking about in the US," said Johan Javeus, FX strategist at SEB Merchant Banking in Stockholm.
The market is divided over whether the Fed will lift its funds rate for a 17th straight time to 5.25 percent in June. Repeated rate increases helped fire the dollar's 15 percent rally against the euro and the yen last year.
Another increase would help the dollar keep its yield advantage over the euro and yen, even as the European Central Bank is poised to press ahead with more rate rises and the BOJ prepares to start doing so soon.
The euro found some support after European Central Bank governing council member Erkki Liikanen said "the direction of interest rates is upwards". Markets are widely expecting the ECB to raise rates in June from the current 2.5 percent.