Euro rally stalls again as ECB meeting looms

SYDNEY Wed Feb 6, 2013 10:41pm GMT

A yuan banknote is displayed next to a U.S. dollar banknote (back) for the photographer at a money changer inside the Taoyuan International Airport March 18, 2010. REUTERS/Nicky Loh

A yuan banknote is displayed next to a U.S. dollar banknote (back) for the photographer at a money changer inside the Taoyuan International Airport March 18, 2010.

Credit: Reuters/Nicky Loh

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SYDNEY (Reuters) - The euro drifted lower on Thursday, while sterling wallowed at multi-month lows as cautious investors waited for the outcomes of central bank policy meetings in Europe and Britain.

Any dovish hint could put both currencies under pressure, much like what the Australian dollar saw this week after the Reserve Bank of Australia kept the door open to further rate cuts even as it left its 3.0 percent cash rate steady.

The euro was last at $1.3522, back near this week's trough of $1.3458 plumbed Tuesday. Still, it remained within reach of a 15-month peak of $1.3711 set about a week ago.

Against the yen, the single currency eased to 126.53 from a 34-month high of 127.71.

Sterling was at $1.5665, not far off a 4-1/2 month low of $1.5630 set Tuesday.

To be sure, both the European Central Bank and Bank of England are widely expected to keep interest rates unchanged on Thursday.

Also overshadowing the meetings are incoming BOE Governor Mark Carney's testimony before the UK parliament as well as an Italian banking scandal, which is sure to be a distraction at the ECB's media conference.

While markets appeared to be positioning for dovish comments from the ECB, some analysts suspect the bank will not be that bothered about the recent strength in the euro.

Vassili Serebriakov, strategist at BNP Paribas, said the majority on the Governing Council will probably reason that the euro's strength is a result of real improvement in the financial markets and economic outlook, thus not warranting immediate action.

"That said, our economists suggest that Mr. Draghi will probably soften the overall tone at the press conference, signalling that easing options are still available if needed," Serebriakov wrote in a client note.

This should temper demand for the euro, which has risen more than 2 percent against the greenback so far this year and over 10 percent on the yen.

The overnight pullback in the single currency helped the dollar index climb to a one-week high of 79.864. But the greenback took a breather against the yen, retreating to 93.59 from a 33-month peak around 94.08.

The yen is expected to remain friendless with the Bank of Japan under the most pressure among major central banks to deliver aggressive easing measures.

One standout currency was the Australian dollar, which skidded to a near three-month low of $1.0296. It was last at $1.0315 with immediate support seen around $1.0311, its 200-day moving average.

Traders suspect the Aussie could carve out a new trading range of $1.0150-1.0450, versus the previous $1.0345-1.0600 range.

The Aussie remains vulnerable to any weak economic news, and the market will be closely watching the January employment report due at 0030 GMT. Forecasts centred on a rise of 5,000 jobs and the unemployment rate to edge up to 5.5 percent.

Investors were quick to punish the New Zealand dollar on the back of local data showing an unexpected drop in employment in the fourth quarter.

The kiwi shed about 40 pips to around $0.8383 in reaction to the data, pulling back further from a 17-month high of $0.8493 set Monday.

(Editing by Wayne Cole)

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