(adds fresh quotes, updates)
* Yellen speech awaited, ADP payrolls data loom
* Investors wary of verbal intervention from ECB's Draghi
* Sterling at six-year highs on upbeat data
By Anirban Nag
LONDON, July 2 The dollar held above a two-month
low against a basket of currencies on Wednesday, before the
release of a survey of the U.S. labour market and a speech by
Federal Reserve Chair Janet Yellen that is expected to be
The euro lost some steam on concern policy makers will
intervene verbally to keep the currency from strengthening. It
fell to a 1 1/2-year low against the British pound, which was
again lifted by better-than-expected data.
Sterling hit a six-year high against the dollar after
forecast-busting UK construction data and more evidence of an
upswing in the housing market. Both heightened expectations that
the Bank of England will tighten policy before the year's end.
The dollar index was steady at 79.85, not far from a
low of 79.740 struck on Tuesday. The dollar eased slightly
against the yen, trading at 101.45 yen, not far from a six-week
low of 101.235 yen struck on Monday.
Investors will eye the ADP jobs-market survey due at 1215
GMT along with Yellen's speech at 1500 GMT. Her recent dovish
bias, especially after the latest Federal Reserve meeting, has
helped lead investors to cut bets in favour of the dollar.
"At the time Yellen seemed determined to give as little
support as possible to rate hike speculation," said Esther
Reichelt, currency strategist at Commerzbank.
"This is unlikely to be any different today. But the market
is waiting for Fed signals and therefore already small hints can
be sufficient to affect the dollar."
The dollar's recent drop has helped the euro recover all of
the ground lost since the European Central Bank announced a new
round of monetary easing a month ago. The bank has its next
policy meeting on Thursday.
The euro eased slightly to $1.3662, having hit a
six-week high of $1.3701 on Tuesday. The euro has gained more
than 1 percent in two weeks, a move that is likely to frustrate
the ECB. President Mario Draghi recently warned that a
strengthening currency amid low inflation was cause for concern.
"A non-event ECB may help the euro squeeze higher, at least
initially. We would sell into any bounce, however, as the euro
short-term rates converge to zero and given that the Fed/ECB
balance sheet ratio may be close to topping out," said Valentin
Marinov, currency strategist at Citi.
"Verbal intervention by Draghi or indications of
unsterilized asset purchases as soon as the fourth-quarter could
send the euro lower against risk-correlated currencies and the
Sterling extended gains after data showed British
construction activity growing at its fastest in four months,
beating forecasts. The construction data is the latest in a
series of forecast-beating numbers showing that the UK's
economic recovery is picking up steam.
The pound rose to $1.7180, its highest since
October 2008. A return to $1.7322 will mark its 50 percent
retracement of the late-2007 to early-2009 tumble from $2.1162
Sterling also held firm against the euro. The euro dropped
to a 1 1/2-year low of 79.51 pence with traders
citing an option barrier at 79.50 pence that was increasingly
"Since the ECB has committed itself to fighting disinflation
aggressively, it appears that irrespective of precisely when the
BoE chooses to start hiking interest rates that it will tighten
well before the ECB," said Jane Foley, senior currency
strategist at Rabobank.
"We see scope for euro/sterling to move towards 78 pence by
year end and slowly onwards towards 77 on a 12-month view."
(Editing by Larry King)