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Dollar Steady vs. Yen as Investors Await Fed Meeting

The dollar was little changed against the euro and yen Friday after soft data on U.S. consumers, holding near 15-year lows versus a basket of currencies in anticipation of a U.S. rate cut next week.

The greenback fell earlier as lackluster retail sales data supported the view the Federal Reserve will cut rates by at least a quarter percentage point at its meeting on Sept. 18.

But the dollar recovered those losses after another report showed a slight improvement in consumer confidence in September.

"With the Fed meeting so close, traders won't want to go into the weekend with big positions, and that is limiting the moves today," said Ezechiel Copic, a senior foreign exchange analyst at IDEAglobal, in New York.

In late morning trading in New York the euro was lower against the dollar, nearly flat against late Thursday's level and still within sight of an all-time high of $1.3927 hit on Thursday.

Against the yen, the dollar was steady, while the euro fell versus the Japanese currency.

This week, demand for the greenback eroded as worries mounted about the fallout from the U.S. subprime mortgage crisis on consumer spending.

The British pound earlier hit a 14-month trough of 68.58 pence per euro after news that one of Britain's most active mortgage lenders had become the latest victim of a global credit squeeze.

Sterling also fell against the dollar to $2.0115 as the Bank of England stepped in to prop up the mortgage lender.

On the data front, sales at U.S. retailers rose a smaller-than-expected 0.3% in August, according to a government report. In another release, the government said August industrial output rose 0.2%, a tad lower than expected.

The data underpinned the view that the Fed may have to reduce the benchmark lending rate at least 25 basis points from the current 5.25%, in a move to stimulate the economy.

Lower interest rates, combined with slower growth, diminish the return and the appeal of U.S. dollar-denominated assets.

"The market seems to be taking this as a net dollar negative," said Shaun Osborne, a senior currency strategist, at TD Securities in Toronto. But "ultimately we still have to wait for the Fed next week."

U.S. Treasury Secretary Henry Paulson said in a television interview with CNBC that there has been some "modest improvement" in credit markets and that the U.S. and global economies are healthy.

Expectations for lower rates in the U.S. also helped push the Canadian dollar to a three-decade high. The currency touched C$1.0284 to the U.S. dollar.