October 27, 2017 / 8:03 AM / 23 days ago

FOREX-Euro falls for a 2nd day as policy divergence trades grow

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Oct 27 (Reuters) - The euro slipped for a second day on Friday, on track for its biggest weekly loss of the year on the back of falling bond yields after the European Central Bank extended its bond buying well into next year.

Investors played the diverging monetary policy outlook view between the U.S. and Europe where the former is expected to raise interest rates again before the end of the year while the latter is not expected to raise interest rates in the coming years.

“The euro is vulnerable now that the highly-anticipated ECB QE tapering announcement is behind us,” said Kit Juckes, an FX strategist at Societe Generale in London.

The euro fell $1.1626 in early trades and is on track to post its biggest weekly loss since the fourth quarter of 2016. Benchmark 10-year German bond yields were at 0.43 percent, well in sight of a 1-1/2 month low of 0.36 percent hit last week.

Investors were surprised at the lack of any hawkishness in ECB policymakers comments despite strong euro zone data indicating growing momentum.

The dollar index, which tracks the greenback against a basket of six major rivals, added 0.2 percent to 94.800, trading at three-month highs and on track for a weekly gain of 1.1 percent.

From a broader point of view, we are somewhat surprised that the ECB did not take the opportunity to mark a sharper break with its current policy settings,” Rabobank strategists said in a note.

Investor attention remains on candidates to head the U.S. Federal Reserve when Janet Yellen’s term expires in February.

Trump’s search for the next central bank chair has come down to Fed Governor Jerome Powell and Stanford University economist John Taylor, Politico on Thursday cited one source as saying. A White House official told Reuters that no final decision has been made.

Trump is expected to announce his candidate before his trip to Asia in early November.

Reporting by Saikat Chatterjee; Editing by Robin Pomeroy

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