FOREX-Euro on defensive before ECB; Aussie jumps on data

Wed Mar 5, 2014 10:09pm EST

Related Topics

* Players take precautions ahead of possible ECB easing

* ECB not expected to cut rates, may opt for lesser measure

* Aussie spikes after data supports steady rates outlook

By Shinichi Saoshiro

TOKYO, March 6 (Reuters) - The euro stayed on the defensive on Thursday, having lost ground against its peers as investors prepared for possible policy easing by the European Central Bank later in the day.

The Australian dollar spiked to a nine-day high after upbeat retail sales and trade data supported a steady interest rate outlook.

The euro last stood at $1.3728, having slipped as far as $1.3707 overnight. It was also down against sterling .

"The ECB is expected to ease in capacity sooner or later but it is hard to find decisive factors supporting such a move this time," said Bart Wakabayashi, head of forex at State Street in Tokyo.

Some participants are still following standard procedure ahead of monetary policy decisions and reducing long positions in the euro, Wakabayashi said.

The ECB is expected to refrain from cutting interest rates at its meeting on Thursday and opt for a less drastic step of loosening lending conditions to fight off the danger of low inflation.

A slight upward surprise in euro zone inflation in February and initial signs of life in some economies in the region have eased pressure on the ECB to take radical steps.

Analysts at Citigroup Global Markets said the ECB risked disappointing the markets by providing less stimulus than expected, supporting the euro.

"There is also a risk that even if the ECB were to do the modest easing that many expect, any positive impact on the euro would be very short term and, as has happened at earlier meetings, the euro could bounce back before the ink on the press conference transcript is dry," Steven Englander, global head of G10 foreign exchange strategy at Citigroup Global Markets, said in a note to clients.

Still, market participants said the euro could face negative pressure if geopolitical tensions flare up again with high-level diplomatic efforts to resolve the crisis in the Ukraine making little apparent headway.

With the euro on the back foot, the U.S. dollar index climbed to its highest for the week at 80.272. It has since retreated to 80.148, partly due to disappointing U.S. data.

Reports on Wednesday showed U.S. private employers added fewer workers than expected in February and growth in the services sector slowed. All eyes are now on nonfarm payrolls due on Friday.

Against the yen, the greenback stood at 102.51, continuing to pull away from Monday's low of 101.20. Talk of maturities in dollar/yen options could inject a bit of volatility in the pair, traders said.

The euro edged up 0.2 percent to 140.715 yen, moving further away from a trough of 138.79 yen touched a week ago on jitters over the Ukrainian crisis.

The Australian dollar gained 0.4 percent to $0.9021 after brushing a one-week high of $0.9033.

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