FOREX-Euro slips before ECB rate meeting, cut expected

Thu May 2, 2013 4:19am EDT

Related Topics

* Euro slips, stays below two-month high versus dollar

* ECB expected to cut interest rates later in day

* Negative impact on euro seen limited

* Fed recommits to aggressive stimulus programme

By Jessica Mortimer

LONDON, May 2 (Reuters) - The euro slipped against the dollar on Thursday in anticipation of the European Central Bank cutting interest rates in an attempt to support a flagging economy.

The ECB is expected to cut its benchmark refinancing rate by 25 basis points to a record low 0.5 percent, its first cut in 10 months. The decision is due at 1145 GMT. ID:nL6N0DH335]

A rate cut would probably be negative for the euro, but traders and analysts said any drop would be limited because the move has already been widely flagged.

Any negative impact on the euro against the dollar may also be limited after the U.S. Federal Reserve on Wednesday said it was ready to step up asset purchases if needed.

The euro was down 0.15 percent at $1.3158, pulling away from a two-month high of $1.3243 hit on Wednesday on trading platform EBS after weaker-than-forecast U.S. private payrolls figures.

"I would expect a muted reaction to the ECB. The big surprise would be if the ECB does nothing, which would see the euro move back above yesterday's highs," said Niels Christensen, currency strategist at Nordea in Copenhagen.

Traders said a sustained move below the 100-day moving average at $1.3161 could encourage further euro selling. Any gains may also be capped by reported offers above $1.3220.

There were also concerns that the euro zone economy could continue to falter and that this would weigh on the euro. Surveys on Thursday revealed a deepening contraction in manufacturing in the region in April.

Traders will look to ECB President Mario Draghi's news conference at 1230 GMT for clues on whether more rate cuts or other easing measures could be in the pipeline.

Some analysts said the euro could be resilient to an ECB rate cut.

"The ECB rate cut has been priced in, so even if they cut... it shouldn't really impact on the euro too much," said Sim Moh Siong, FX strategist for Bank of Singapore, adding that recent weak U.S. economic data may also support the single currency.

The dollar was up 0.3 percent at 81.723 against a basket of currencies, off Wednesday's two-month low of 81.331.

If jobs data on Friday adds to the recent picture of a general softening in the U.S. economy it would intensify speculation that the Fed's next move is more likely to be to increase debt purchases, which would be negative for the dollar.

The dollar fell 0.2 percent to 97.20 yen, further eroding gains made after the Bank of Japan announced a $1.4 trillion monetary stimulus plan on April 4.

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