LONDON (MarketWatch) -- The dollar was mixed in quiet trade Wednesday, maintaining narrow trading ranges against most major counterparts as markets awaited U.S. consumer price inflation data set for release later in the day.
The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, was at 87.142, up slightly from 87.114 in North American activity late Tuesday.
The euro bought $1.2618, down slightly from $1.2637. The dollar was virtually unchanged versus the Japanese currency at 96.84 yen.
Equity markets likely hold the key for action in foreign exchange, wrote currency strategists at HBOS, noting key equity indexes continue to grind near recent lows.
"Given the strong link across commodity, equity and [foreign exchange] markets at the moment, foreign exchange is likely to remain in consolidation formation until equity markets break -- for now the risk remains of a break lower," they wrote.
Equity weakness has translated into losses for the euro, the British pound and former high-yielding currencies. It's been a boost for the dollar and, to an even greater degree, the yen.
Both the dollar and yen have benefited from repatriation flows amid deleveraging and liquidation.
Meanwhile, "across the Atlantic this afternoon the CPI data could again offer some insight as to the health of the U.S. economy and in turn provide further direction for" the euro/U.S. dollar pair, said James Hughes, an analyst at CMC Markets.
The CPI is expected to show a 0.9% decline in October following a flat reading in September, according to a MarketWatch survey of economists. Read Economic Preview.
The British pound bounced higher against the U.S. dollar to trade at $1.5059, up from $1.4967 Tuesday. The euro lost ground to 83.80 pence, down 0.7% versus sterling.
The pound tumbled to a six-year low against the dollar and an all-time low versus the euro last week.
Sterling was undercut by the Bank of England's aggressive 1.5 percentage point reduction in its key lending rate to 3% earlier this month and by expectations further, aggressive rate cuts are to come.
"Sterling has bounced this week, following the oversold state that it reached on short-term indicators last week," the HBOS strategists said.
The trend, however, in interest-rate spreads remain sterling- negative, they warned, making it likely sterling strength will fade in the second half of the week, leaving an upside risk" for the euro versus the pound.
Minutes released Wednesday of the Bank of England's Monetary Policy Committee meeting on Nov. 5-6 showed, as expected, that members voted unanimously to back the sharp rate cut.
The minutes also revealed the MPC pondered an even steeper rate cut but held off, partly out of concern a bigger cut could send the pound down sharply and boost otherwise-fading inflation expectations.
