By Vivianne Rodrigues
NEW YORK, June 19 (Reuters) - Declines in the U.S. dollar are likely to stall at the start of next week as investors await a meeting of the Federal Reserve and its statement on the interest rate outlook, amid a slew of data and debt auctions.
The dollar fell this week as more upbeat U.S. economic data and gains in equities fueled hopes a global economic recovery was on track and boosted appetite for assets outside the United States. Still, tame inflation reports dampened speculation the Fed would raise rates soon, capping any sharp dollar moves.
The Fed's policy decision is due on Wednesday, when it is widely expected to leave benchmark rates unchanged.
"We are getting into FOMC mode, with forex markets lacking conviction on any move up or down in euro/dollar," said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto, referring to the Federal Open Market Committee, the policy arm of the Fed, which is the U.S. central bank.
"For the dollar, it's all about the statement and investors will be scrutinizing it closely to see if the Fed keeps or changes its language on rates."
"They may start hinting on an 'exit' plan for zero rates and on whether they will buy more Treasuries," he added. "That has the potential to move forex markets."
Analysts at Calyon also said euro/dollar is likely to trade rangebound until the FOMC meeting even as risk appetite "nudges" higher. Extreme risk aversion in the past couple of months has helped support a rally in the dollar.
"The forex market is likely to be subdued, hovering around current levels until the FOMC meeting," Stuart Bennett, a senior FX strategist at Calyon, said in a note.
Traders also pointed that the rally in the euro has lost momentum against the dollar above $1.40. The euro zone single currency is still beset by Europe's financial and fiscal situation given disclosure from the European Central Bank this week that European banks may face another $283 billion in losses by the end of next year.
"Growth worries will continue to be a drag on the euro in the coming weeks regardless of market risk appetite and we expect continued underperformance to extend over the medium term," said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut.
The euro was last trading at $1.3929
A key measure of business sentiment Germany, the Ifo index, will be released on Monday and a euro zone PMI manufacturing and services report will follow on Tuesday.
HOUSING DATA
In the United States, a slew of data is slated for release next week, with highlights being the reports on existing and new home sales on Tuesday and Wednesday.
Investors are still uncertain about how long it will take for the U.S. economy to recover and whether actions by the U.S. government to stoke a recovery will in fact be a drag in the longer term. However, any improvement in the U.S. housing and labor markets should help drive U.S. equities and U.S. Treasury yields higher.
"One should not ignore the housing data," said Strauss at RBC Capital. "The market is becoming more sensitive to data in the U.S. Next week's economic reports have the potential to move the markets on both sides."
Other data in the coming week include a report on durable goods on Wednesday, the final U.S. first-quarter reading on gross domestic product on Thursday, and the week wraps up with consumer confidence and price index readings on Friday.
Another record round of U.S. Treasury auctions -- some $104 billion of debt will be offered next week -- will be closely followed for signs of how investor demand is holding up in the face of an avalanche of new government paper. (Reporting by Vivianne Rodrigues; Editing by James Dalgleish)