January 11, 2018 / 1:18 PM / 2 months ago

FOREX-Euro surges after ECB says could revisit policy message soon

* Euro gains after ECB minutes released

* Dollar up against yen after hitting 6-week low

* Traders still see dollar weakness

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

By Tommy Wilkes

LONDON, Jan 11 (Reuters) - The euro jumped almost a cent on Thursday after the European Central Bank said it could revisit its communication stance in early 2018, boosting expectations that policymakers are getting ready to reduce their vast monetary stimulus programme.

The single currency climbed to as high as $1.20255 after the minutes, having traded at $1.1937 before their release, leaving it up 0.6 percent on the day. Against the pound the euro rose 0.7 percent, hitting a one-week high of 89.11 pence.

A change in the ECB’s policy message would probably be taken by investors as a sign that rate-setters are getting ready to wind down their 2.55 trillion euro bond-buying programme, the key plank of their stimulus policy for the past three years.

Expectations the ECB will finally move to tighten monetary policy amid a strong economic recovery in the region helped the euro have its best year in 2017 against the dollar since 2003.

Adam Cole, global head of FX strategy at RBC Capital Markets in London, said the minutes suggested a near-term start-date for when the ECB will start to shrink its bond-buying programme.

“The upside [for the euro] is quite ultimately limited because it’s [the ECB policy stance] clearly conditional on how things develop in the next few months,” he said.

The dollar has been struggling to gain traction in the opening days of 2018 after losing around 10 percent against a basket of currencies last year as economic growth elsewhere, notably in Europe, overtook the United States.

And while the U.S. Federal Reserve has been slowly tightening policy over the last two years, traders have been repricing market expectations of when Europe and Japan will follow suit.

Bloomberg News had reported on Wednesday that Chinese officials reviewing the country’s foreign exchange holdings had recommended slowing or halting purchases of U.S. Treasury bonds, pushing 10-year yields higher and the dollar lower.

China’s foreign exchange regulator said the report could be based on erroneous information, adding that the country was diversifying its forex to safeguard their value.

The dollar then rallied and was up as much as 0.4 percent before slipping back to trade 0.2 percent up at 111.69 yen. The U.S. currency is still down more than 1 percent against the yen this week after markets bet the Bank of Japan (BoJ) could start to tighten monetary policy faster than expected.

Against a basket of currencies the dollar turned negative and was down 0.2 percent after earlier trading higher.

Many analysts remain bearish, although some see the dollar’s decline as bottoming out.

“The currency has been testing its lows from the past two years, but the strong economic backdrop should mean it avoids any further depreciation, especially after 2017’s meaningful correction,” wrote Eugene Philalithis, a portfolio manager at Fidelity.

The offshore yuan rate held steady at 6.51 yuan versus the dollar after a volatile week in which the Chinese currency fell sharply on news the central bank had taken a step to loosen control over the exchange rate. (Additional reporting by Masayuki Kitano in SINGAPORE and Kirsten Donovan in LONDON; Editing by Catherine Evans)

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