Euro steadies, dollar rises vs yen as JGB auction brings relief

By Joice Alves and Gregor Stuart Hunter

LONDON/SINGAPORE, Dec 2 (Reuters) - The euro steadied on Tuesday ahead of euro zone inflation and unemployment data, while the dollar rose against the yen after an auction of Japanese government debt drew solid demand, easing investor nerves after Monday's selloff in global fixed income.

The euro EUR= was steady at 1.1606 ahead of inflation data expected at 1000 GMT, with traders not expecting the numbers to move the needle around European Central Bank rate cut expectations.

In the meantime talks to end the war in Ukraine continued.

"Today’s CPI shouldn’t move the needle dramatically for ECB rate expectations... If anything, the risks are slightly on the downside for the euro, but our expectation is for a neutral FX impact," said Francesco Pesole, FX strategist at ING.

The greenback rose 0.37% against the yen to 156.01, after hitting a two-week low on Monday, following a sale of 10-year Japanese government bonds which saw the strongest demand since September, prompting a rebound in super-long-dated securities after yields set fresh records earlier in the day.

"The auction result appears to have provided a measure of reassurance to the market," said Shoki Omori, chief desk strategist at Mizuho in Tokyo.

Stocks, bonds, cryptocurrencies and the dollar all tumbled on Monday after Bank of Japan Governor Kazuo Ueda said that the central bank would consider the "pros and cons" of raising interest rates at its next policy meeting, sending Japanese two-year yields JP2YTN=JBTC above 1% for the first time since 2008 and prompting a spillover into global bond markets.

Adding to the anxiety was weaker-than-expected manufacturing data from the U.S., heaping pressure on the Federal Reserve to cut interest rates this month. Fed funds futures are pricing an 87% probability of a 25-basis-point cut at the Fed's next meeting on December 10, compared to a 63% chance a month ago, according to the CME Group's FedWatch tool.

The dollar index =USD was steady at 99.48, after touching a more than two-week low on Monday.

Sterling was also flat on the day at $1.3215 GBP=, having touched its highest level in a month on Monday.

The Bank of England on Tuesday cut the amount of capital it estimates lenders need to hold in a bid to boost lending and stimulate the economy in the first reduction to bank capital demands since the financial crisis.