Dollar steadies in London

The dollar was steady versus the euro on Tuesday ahead of US inflation data that could back up interest rate cut expectations, while the yen hit a three-month low against the dollar after weak Japanese machinery data. High-yielding sterling hit a two-month low versus the euro after slowing inflation cooled UK rate hike expectations.
With all eyes on the US data, the euro failed to gain from figures showing the eurozone economy grew an above-forecast 3.1 percent in the first quarter from the same period last year. This compares with US Q1 growth of 1.3 percent and also cemented expectations the European Central Bank will raise interest rates next month - a view fully priced in the market.
"(Eurozone GDP) was a little higher than expected but we need to think about what will happen going forward. We have almost close to 2 (25 basis points rate hikes) priced in," said Laura Ambroseno, currency strategist at Morgan Stanley.
US April core consumer prices, due at 1230 GMT, which exclude food and energy costs, are expected to have risen 0.2 percent in April. "You have to get a fairly strong figure than market expectations to give near-term support for the dollar. You are starting to see soft growth more definitely bottoming out in the Q2. It's not out of the woods but the idea is that it's not going to get worse," Ambroseno said.
By 1150 GMT, the euro was steady at $1.3539, up from a one-month low around $1.3461 hit last week. The dollar was steady at 120.37 yen after rising to 120.58. Analysts said the yen's rise was limited due to low expectations on the rate outlook.
"The market is fairly confident that the BOJ are simply not in a position to talk rhetoric that is signalling rate hikes when they meet on Thursday," Derek Halpenny, currency economist at UFJ-BOTM. The euro was unchanged at 162.97 yen, having hit a record high of 163.62 yen this month.
Sterling was down almost 0.2 percent at $1.9756. The New York Fed's manufacturing survey and US Treasury capital flows data are also due. Some economists expect the Fed to start cutting interest rates later this year, and with the ECB raising rates, that will narrow interest rate differentials.