FOREX-Yen slides despite rate hike talk; sterling choppy after financial forecasts

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BOJ eyes rate hike as soon as next month - sources

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New Zealand dollar surges on hawkish RBNZ tilt

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Traders anticipate December Fed cut, weigh new Fed chair

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Sterling choppy as investors digest OBR forecasts

(Updates with afternoon trading ahead of UK budget)

By Ozan Ergenay and Rae Wee

SINGAPORE/LONDON, Nov 26 (Reuters) - The yen softened on Wednesday even as expectations rose that the Bank of Japan could hike rates next month, while sterling swung as investors digested the surprise release of figures from Britain's fiscal watchdog ahead of the country's budget.

The BOJ is preparing markets for a possible interest rate hike as soon as next month, sources told Reuters, reviving previous hawkish language as worries about sharp yen declines return and political pressure to keep rates low fades.

The yen initially rose on the back of the report, before reversing course. It became the worst performer against an otherwise weaker dollar, down 0.3% at 156.51 per dollar, having earlier hit an intraday high of 155.66.

The yen has been under pressure from worries about Japan's worsening fiscal position, with traders on alert to possible intervention from Tokyo to stem the currency's decline.

"There is a possibility of intervention over Thanksgiving, but if the market's fear of intervention is sufficient to stop dollar/yen from rising, it sort of reduces the possibility," said Jane Foley, head of FX strategy at Rabobank London.

"But they have, in the past, intervened when liquidity was extremely light because they can get more bang for their buck, and that is why the market is fearing that they could do it towards the tail end of this week."

DOVISH FED PATH ON THE HORIZON

Elsewhere, the dollar was on the defensive after benign U.S. economic data reinforced expectations of a December rate cut, and as investors bet the leading candidate to be the next Federal Reserve chair may pursue a more dovish policy.

Bloomberg News reported that White House economic adviser Kevin Hassett has emerged as the frontrunner to be the new chair.

Hassett, like Trump, has said interest rates should be lower than they are under Fed Chair Jerome Powell. U.S. Treasury Secretary Scott Bessent said on Tuesday there was a good chance Trump would announce his pick before Christmas.

"(Hassett) would be on the dovish side definitely, when you compare with some of the other members that were discussed," said Ales Koutny, head of international rates at Vanguard in London.

But he added, "At the end of the day, we have had three months without economic data from the U.S. and we're going to get a lot ... markets will be much more driven by actual fundamental data rather than an appointment for the Fed chair."

All of that left traders adding to bets of a Fed cut next month, with markets now pricing in an 85% chance of a 25-basis-point move, according to the CME FedWatch tool.

After rising 0.4% against the dollar on Tuesday, the euro steadied at $1.1570 on Wednesday.

The pound is also in focus with Britain's budget announcement due to begin at 1230 GMT.

It briefly rallied after forecasts from the Office for Budget Responsibility offered a more upbeat view of Britain's economy and finances, but later dropped.

Sterling was last down 0.24% on the dollar at $1.3139 and was also softer on the euro at 88.06 pence to the common currency.

NEW ZEALAND AND AUSSIE DOLLARS FIRM

The New Zealand dollar jumped after the country's central bank cut its interest rate to 2.25% as expected, but signalled an end to the easing cycle as the economy showed early signs of recovery.

The kiwi rose nearly 1% to $0.5669, hitting its highest in over two weeks, as traders reduced expectations for further rate cuts.

The Australian dollar rose 0.4% to $0.6490 after Australian inflation accelerated for a fourth straight month in October, closing the door to further policy easing.

"We're getting to the point where a significant number in G10 (countries) have already potentially completed their rate cutting cycles, and where their next move could be interest rate hikes," Rabobank's Foley said. (Reporting by Ozan Ergenay and Rae Wee. Editing by Raju Gopalakrishnan and Mark Potter)