Euro stays stable

The dollar was steady against the euro on Wednesday as investors looked ahead to US retail sales data later in the session for clues on the depth of the economic slowdown and the likely need for further interest rate cuts.
Economists polled by Reuters estimate sales slipped 0.2 percent in January after a 0.4 percent decline in December. The data is due at 1330 GMT. "If (the data) comes in flat, people will say it's recession and the dollar will dip and then rally sharply after that - because people will remember the monetary dynamism of the Federal Open Market Committee," said Neil Mellor, currency strategist at Bank of New York Mellon.
In recent sessions, any dollar sell-offs on weak US data have proved short-lived because markets have tended to reward the Fed for its pre-emptive stance on expectation that its aggressive rate cuts will succeed in staving off a recession.
At 1149 GMT, the euro was steady at $1.4581. It was 0.2 percent up against the yen to 156.88 yen, while the dollar gained a similar amount to 107.53 yen. Despite weakness in Chinese and European equities, US stock futures pointed to a higher open on Wall Street, propping up investor risk appetite.
The yen tends to do better at times of risk aversion, when investors unwind carry trades, in which they borrow in the low-yielding Japanese currency to fund purchases of higher yielding assets.
Sterling made gains against the dollar after the Bank of England quarterly inflation report signalled that rates would be eased only modestly. The BoE said it would overshoot its 2 percent inflation target if it cuts rates as fast as the market expect.
"Initially it does seem slightly more hawkish than expected, with inflation above target based on market expectation for interest rates and set to accelerate sharply despite the growth slowdown," said James Knightley, senior economist at ING.
"I guess it may suggest to the market that rate cuts may be even more limited than they are currently pricing." In the United States, the retail data will set the scene for Federal Reserve Chairman Ben Bernanke's testimony on Thursday, when he will speak on the state of the US economy and financial markets before the Senate Banking Committee.
The Fed slashed interest rates by a hefty 125 basis points last month to 3.0 percent, the lowest in nearly three years, to prevent the world's biggest economy from falling into a recession.