* Euro steady ahead of euro zone inflation data
* Yuan weakens, dealers eye implications for euro
* Fed policy also in focus
(New throughout, changes dateline from previous SINGAPORE)
By Patrick Graham
LONDON, April 30 The euro trod water in early
European trade on Wednesday with all eyes on euro zone inflation
numbers due later, while offshore rates for China's yuan fell
again, taking it to an 18-month low against the dollar.
Preliminary German numbers on Tuesday hinted at a lower
number than the 0.8 percent consensus forecast for euro zone
inflation. Traders and analysts said that was putting more
pressure on an otherwise buoyant single currency.
The yen was also a touch higher, although struggling to hold
onto its gains, after the Bank of Japan as expected held off
with any fresh economic stimulus. Dealers also pointed to
Japanese exporters selling dollars before the month ends.
Concern continues to grow over the outlook for inflation in
the euro zone, reflected in regular efforts by the European
Central Bank over the past month to rein in any further gains
for the euro.
Another low figure would add to pressure for the bank to
take more steps to flush extra euros through the banking system
and into the real economy.
"After the German numbers yesterday, it certainly looks like
we may get an undershoot in euro-area inflation," said Paul
Robson, strategist with RBS in London. "To some extent that is
in the price, but I think it will keep the euro on the back foot
if we get a weaker number."
The euro was less than 0.1 percent lower on the day at
$1.3806, having retreated from Tuesday's intraday high of
$1.3880. The yen gained just under 0.2 percent against both the
dollar and the euro, to 102.49 and 141.49 yen
Despite all the bearish signals for the euro, it remains
within shouting distance of levels above $1.39 reached last
month, its highest since late 2011. Broadly, that seems to be
the result of Germany's large current account surplus and
inflows of portfolio capital to European bond and stock markets.
"Every trader I know in London seems to be calling for a
weaker euro. You can't find anyone who wants it higher, yet it
does not want to fall," said a dealer with one London bank. "At
that point you just find yourself trading off a square book and
waiting for a clearer trend to re-emerge."
The yuan's losses this year, its first major turnaround in
more than a decade, are seen by many as having important
ramifications for the major developed-world currencies.
Dealers say every weakening of the renminbi leads to the
Chinese central bank recycling some of the dollars it buys in
the process into euros to rebalance its reserves. That adds
support to an already strong single currency.
In broader terms, economists are also beginning to point to
the fallout for already depressed consumer prices in Europe.
They are likely to fall further if goods from China become
cheaper, adding pressure on the European Central Bank to ward
off a debilitating cycle of falling prices and demand such as
Japan saw in the recent past.
"Europe imports an awful lot of consumer goods from China
and other Asian economies, and if we see a weaker Asian currency
bloc then that will lead to the import of more disinflation
(into the euro zone)," Robson said.
The U.S. Federal Reserve's policy review is also coming up
later on Wednesday. The Fed is set to continue paring stimulus
with a $10 billion taper to its monthly bond buying widely
As for when the Fed will actually start lifting interest
rates, traders said anyone seeking clarity on that front will be
left sorely disappointed.
(Editing by Larry King)