The U.S. dollar traded in narrow ranges against the euro and the yen in afternoon Asian trade on Wednesday as investors remained skeptical about the possibility that the Federal Reserve will raise its key interest rates soon to fight inflation pressures.

In the last few days, Fed Chairman Ben Bernanke has reiterated that inflation risks in the world’s biggest economy are growing and most analysts and economists took this to mean that policymakers will increase rates in the coming months.

“Although the market has shifted abruptly in favour of Fed tightening, I am still skeptical,” said Thomas Lam, senior treasury economist at United Overseas Bank in Singapore.

At 1:00 p.m. (0500 GMT), the euro was trading at $1.5462 from $1.5463 in Sydney this morning. The dollar was quoted at 107.60 yen from 107.45 yen.

Tim Condon, research head at ING Financial Markets in Singapore, shared Lam’s views.

“ING is looking for a 50 basis points rate cut in the fourth quarter,” Condon said. “We are not expecting any rate hike this year. Not until 2009.”

The weakness in the U.S. economy, with the housing and financial sectors still in a slump and consumers and businessmen still hesitant to increase spending and investment, will probably ease inflation pressures, Condon said.

“Inflation pressures will abate as growth slows,” Condon said.

Bank of America’s Tomoko Fujii and Standard Chartered Bank’s David Mann have earlier also expressed doubts about the Fed raising rates by year-end.

The Fed last month raised its 2008 average inflation estimate to as high as 3.4 percent from as little as 1.8 percent at the start of the year. It expects the U.S. economy to grow as little as 0.3 percent this year, down from its previous estimate of as much as 2.5 percent.

Higher crude oil prices and a weak currency are jacking up prices of consumer products in the United States. Washington will release last month’s inflation data on Friday.

“The rhetoric from chairman Bernanke recently, which evidently shows increased sensitivity on inflation, is part and parcel of the Fed’s strategy of ‘effective communication’ to preserve price stability. In reality, the balance between growth and inflation still remains extremely contentious and hesitant,” said UOB’s Lam.

The dollar has gained against the euro and the yen in previous sessions on views the Fed is ready to increase borrowing costs that will make U.S. assets more attractive to investors.

“People are looking for a respite from some of the recent turbulence in the currency market, that’s why the dollar is trading range-bound today,” said ING’s Condon.

Condon also doubts whether the European Central Bank (ECB) will make good its promise to hike its benchmark rate as early as next month. The ECB has kept its rate steady at a six-year high of 4 percent since June, while its peers in the U.S., Canada and the UK have lowered rates.

In fact, Condon expects the ECB to lower its rate by a quarter of a point in the fourth quarter to boost the economy of the 15-member euro zone area.

In Japan, the yen was steady after the government said the economy grew at a much faster pace in the first quarter than earlier estimated, though wholesale prices have risen considerably.

Tokyo said gross domestic product expanded 4 percent in the previous quarter from a year ago, more than the earlier estimate of 3.3 percent. Wholesale prices, meanwhile, jumped at its fastest pace in 27 years in May.

The Bank of Japan, which will hold a two-day meeting starting tomorrow, will likely keep its key rate unchanged at 0.5 percent, the lowest among developed countries, said Mark Wan, chief analyst at Hang Seng Investment Services.

Hong Kong 1:00 p.m. (0500 GMT)

U.S. dollar

yen 107.60

Swiss franc 1.0436

Euro

U.S. dollar 1.5462

yen 166.53

Swiss franc 1.6146

pound 0.7912

Pound

U.S. dollar 1.9540

yen 210.41

Swiss franc 2.0401

Australian dollar

U.S. dollar 0.9439

pound 0.4828

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