LONDON (Thomson Financial) - The dollar was steady at lower levels against other major currencies ahead of the US rate verdict later tonight where at least a quarter point reduction to 5.00 pct is predicted.
Some chance of a 50 basis point cut to 4.75 pct also remains and against this backdrop investors appear to be tending towards caution.
Michael Carey at Calyon is plumping for a quarter point reduction although he is also banking on the accompanying statement to leave open the possibility of more cuts.
While he expects the base rate to fall to 4.50 pct by year end, he also believes a cut of 50 basis points today would have a whiff of panic, in turn denting overall sentiment by more than necessary.
Indeed, a half point cut will likely hit the dollar.
Over in the UK, the pound was a touch higher after the government pretty much guaranteed all bank deposits late last night in the light of the continued run on ailing Northern Rock.
The news dominated headlines today and on an encouraging note, Northern Rock shares have risen slightly in today's trading.
Analysts are wondering if yesterday's action marks a departure for the Bank of England and a sign that it will embark on greater intervention to address the drying up of liquidity in the system.
This morning, thee Bank of England has offering cash-strapped financial institutions another 4.4 bln stg of reserves in order to deal with short-term liquidity problems that may have been exacerbated by the crisis engulfing Northern Rock PLC.
In an announcement this morning, the central bank said it will be holding at 9 am 'an exceptional fine-tuning Open Market Operation', which will involve offering 4.4 bln of exta reserves in a two-day repo maturing on Thursday at the Bank rate of 5.75 pct.
The central bank said the 4.4 bln stg is equivalent to 25 pct of reserves targets and is in addition to the stg 4.4 bln provided for one week last Thursday.
On the whole the the current crisis is one of confidence and will likely weigh on GDP growth.
'The pound has has actually suffered less than might have been imagined, and an international takeover of Northern Rock could even see the currency bounce,' said Daragh Maher at Calyon said.
'In some respects, the pound's immediate fortunes may rest on the length of queues outside Northern Rock, but with news headlines likely to remain grim, the downside risks for pound will persist,' he added.
Also out today, UK inflation data had some impact after the headline CPI annual rate edged down to 1.8 pct, opening the way for a rate cut which may eventually help UK growth rates.
London 0833 GMT Sydney 0010 GMT
US dollar
yen 115.01 down from 115.04
sfr 1.1872 up from 1.1869
Euro
usd 1.3864 down from 1.3867
yen 159.41 down from 159.53
sfr 1.6455 down from 1.6465
stg 0.6940 down from 0.6959
Sterling
usd 1.9970 up from 1.9935
yen 229.67 up from 229.27
sfr 2.3700 up from 2.3662
Australian dollar
usd 0.8321 down from 0.8340
stg 0.4166 down from 0.4183
yen 95.69 down from 95.970
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