TOKYO (Reuters) - The euro edged down against the dollar and the yen on Wednesday on views that the European Central Bank will likely boldly slash interest rates to shore up the faltering euro zone economy.
But overall trading showed jittery movements as investors awaited interest rate decisions by the ECB, the Bank of England and the Reserve Bank of New Zealand on Thursday.
The market expects all of them to slash rates as the global financial crisis continues to take a toll on their economies, while investors believe the Federal Reserve and the Bank of Japan have only limited scope for further rate cuts.
"The yen is expected to further strengthen against the higher-yielding currencies on prospects of rate cuts by those central banks and it could continue to rise even after the decision are made," said Akira Takeuchi, a manager at Chuo Mitsui Trust and Banking.
The dollar found some support from a growing view that ailing U.S. automakers may be rescued by the government.
A top U.S. lawmaker predicted Washington would approve a bailout for the automakers after they submitted survival plans. General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) and Chrysler LLC CBS.UL have said they need an immediate cash infusion to avoid failure.
"The dollar may be able to avoid a significant fall against the yen on an easing of worries about the U.S. automakers, which will probably support U.S. shares," said Takeuchi.
The dollar was at 93.22 yen, steady from late Tuesday U.S. trading, after falling as low as 92.86 yen in early Asian trade. The U.S. currency hit a five-week low of 92.63 yen on trading platform EBS the previous day.
The euro edged down 0.1 percent to $1.2703. Against the yen, the European single currency slipped 0.1 percent to 118.48 yen.
Sterling was down 0.1 percent at $1.4893.
The market's focal point at the moment is how aggressively the ECB and BoE cut interest rates, narrowing their currencies' yield advantages over the dollar and the yen.
The ECB is seen lowering rates by at least 50 basis points, from 3.25 percent, while investors bet the BoE will slash rates by 100 basis points from the current 3.0 percent level.
Fed Chairman Ben Bernanke said on Monday the U.S. central bank had alternative tools it could employ to help the economy as interest rates approach zero, though he said further cuts in rates beneath the current 1 percent level were feasible.
"The dollar is likely to stay buoyant against the euro as euro zone interest rates could be further lowered even after the expected ECB rate cut this week," said Hideki Hayashi, chief economist at Shinko Securities.
Japan's central bank said on Tuesday it would expand lending by about 3 trillion yen ($32.2 billion) to help tide over companies from the credit squeeze but left rates steady at 0.3 percent at an emergency meeting.
(Additional reporting by Rika Otsuka; Editing by Michael Watson)
