FOREX-Euro eases ahead of ECB, off 2-month high vs dlr

Wed May 1, 2013 11:39pm EDT

Related Topics

* Euro steady below previous day's 2-month high vs dlr

* Fed recommits to aggressive stimulus programme

* ECB next in focus, then U.S. jobs on Friday

By Masayuki Kitano and Ian Chua

SINGAPORE/SYDNEY, May 2 (Reuters) - The euro eased versus the dollar on Thursday and stayed below the previous day's two-month high, as the focus turned to whether the European Central Bank will cut interest rates to support the euro zone's struggling economy.

The euro inched down 0.1 percent to $1.3174. The single currency had hit a two-month high of $1.3243 on Wednesday on trading platform EBS, as the dollar retreated after data showed that U.S. companies hired the fewest employees in seven months in April.

The euro's immediate fortunes depend on the ECB, which is seen likely to deliver a token 25 basis-point rate cut to its 0.75 percent benchmark refinancing rate at its meeting later on Thursday.

Anything less than a rate cut could see the euro stage a rebound, traders said.

Sim Moh Siong, FX strategist for Bank of Singapore, said the euro could prove resilient even if the ECB were to cut its main refinancing rate.

"The ECB rate cut has been priced in, so even if they cut... it shouldn't really impact on the euro too much," he said, adding that the recent weakness of U.S. economic data may help support the single currency.

"What would have a more material impact on the euro in terms of downside risk would be a deposit rate cut, but I don't think that is on the table," he added.

The deposit rate, currently at zero, acts as a floor for money markets, and the ECB has made clear it has no appetite to take it into negative territory.

The dollar stood at 81.661 against a basket of currencies, having hit a two-month low of 81.331 on Wednesday.

The greenback had pulled away from its two-month trough after the U.S. Federal Reserve recommitted to its aggressive stimulus programme on Wednesday and kept its options open on what it would do next.

That had disappointed some in the market looking for a clear indication of bigger debt purchases, driving U.S. Treasury yields up from four-month lows and helping the dollar trim broad losses.

U.S. JOBS DATA

Yet with U.S. data turning soft, some analysts said the Fed is more likely to respond by increasing its debt purchases rather than taper off.

Analysts at Barclays Capital said the Fed's stance was "incrementally dovish" and suggested that real yields have room to fall.

The market's focus will now turn to the closely watched U.S. jobs data due on Friday.

In addition to the weaker-than-expected ADP National Employment Report, two separate reports on manufacturing released on Wednesday also showed employment slowed in April, pointing to the risk of a soft reading from Friday's jobs data.

Against the yen, the dollar inched down 0.1 percent to about 97.36 yen, staying below a four-year high of 99.95 yen set in April.

Elsewhere, the Australian dollar slipped 0.3 percent to $1.0254.

The Australian dollar showed limited reaction to a private survey showing that China's factory-sector growth eased in April as new export orders fell for the first time this year.

The final HSBC Purchasing Managers' Index (PMI) dropped to 50.4 in April from March's 51.6 and was largely in line with a flash reading of 50.5.

Doubts about the strength of China's economy after a disappointing first quarter have weighed on the Australian dollar in recent weeks. China is Australia's single biggest export market.

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