- Pound falls as UK inflation below forecasts
- Dollar steadies after three-day rally
- Yen rises slightly, eyes on BoJ
LONDON/SINGAPORE, Oct 22 (Reuters) - The U.S. dollar was flat against a basket of currencies on Wednesday, pausing after a three-day rise, while the pound fell after British inflation in September was softer than forecast.
The yen rose slightly against the dollar after earlier hitting a one-week low on Tuesday as sources told Reuters that new Prime Minister Sanae Takaichi is preparing an economic stimulus package likely to exceed last year's 13.9 trillion yen ($92.19 billion) to help households tackle inflation.
After sharp falls, gold prices eased to steady at $4,119.80 per ounce after their biggest one-day plunge in five years the previous session.
POUND DIPS AS INFLATION UNDERSHOOTS EXPECTATIONS
The British pound was the weakest major currency on Wednesday after inflation unexpectedly held at 3.8%, undershooting expectations of both economists and the Bank of England.
Sterling was down 0.4% against the dollar at $1.3318 and 0.3% against the euro at 87.04 pence .
"When the BoE started sending hawkish signals recently, they had this out-of-consensus view that inflation would prove stronger than what markets or economists were expecting and it's not really proving to be the case at the moment," said Francesco Pesole, FX analyst at ING.
"It opens the door for a rate cut in December, but not in November because it's too early before the budget."
Investors are pricing in about a 75% chance that the BoE lowers interest rates by year-end.
EYES ON YEN
The U.S. dollar was last 0.1% weaker at 151.85 yen .
The yen has lost 2.5% this month as Takaichi jostled to become Japan's prime minister, marking its biggest monthly decline against the greenback since July, as investors anticipated expansionary fiscal policy and a testy relationship with Japan's central bank would weigh on the currency.
"Takaichi's first statements as prime minister suggest she wants to calm markets and not exacerbate any weakness in the yen for the moment," ING's Pesole said.
Takaichi, an advocate for loose fiscal and monetary policy, said on Tuesday that the specific means of monetary policy were up to the Bank of Japan to decide.
New finance minister Satsuki Katayama said on Wednesday that it is necessary for the government and BoJ to coordinate to make economic and monetary policies effective.
The BoJ is scheduled to announce its latest policy decision on October 30. Futures imply about a 20% chance of a quarter-point rate hike to 0.75%.
DOLLAR STEADIES
The dollar index , which measures the greenback's strength against a basket of six currencies, was last trading at 99.01, little changed on the day after three consecutive days of gains. President Donald Trump on Tuesday rebuffed a request by top Democratic lawmakers to meet until the three-week-old U.S. government shutdown ends.
Expectations that the shutdown will end soon are dwindling, according to the prediction market site Polymarket, which is pricing a 40% implied probability that the U.S. government will remain closed until November 16 or later.
The standoff complicates the task facing the Federal Reserve at its meeting on October 29, but the central bank is still expected to lower its key interest rate by 25 basis points next week and again in December, according to a Reuters poll of economists who remain deeply divided on where rates will be by the end of next year.
Fed funds futures imply a 97.3% probability of a 25-basis-point cut to interest rates, compared with a 99.4% probability yesterday, according to the CME Group's FedWatch tool.
The euro was flat at $1.1597 as a planned summit between Trump and Russian President Vladimir Putin was put on hold after Russia rejected an immediate ceasefire in Ukraine.
Reporting by Samuel Indyk and Gregor Stuart Hunter; Editing by Sam Holmes and Philippa Fletcher
Source: Reuters