* Markets cautious that euro strength may concern ECB
* Could dip further before ECB meeting on Thursday
* Broader trend for further gains intact
NEW YORK, Feb 6 The euro fell against the dollar
and yen on Wednesday, with traders increasingly cautious ahead
of a European Central Bank meeting on Thursday in the event that
ECB President Mario Draghi raises concerns about the high level
of the euro.
Most analysts believe Draghi will avoid commenting on the
currency but rather recognize the improvement in the euro zone
outlook and in market sentiment while acknowledging the region
still faces many hurdles.
The extent of nervousness was shown when the euro pared
losses on Wednesday on comments by German government spokesman
Steffen Seibert, who said the euro was not over-valued and that
long-term competitiveness could not be achieved via exchange
Traders said the euro was likely to be sold on any rallies
ahead of Thursday's ECB meeting, but it could resume its recent
"The focus is speculation over tomorrow's ECB statement and
President Draghi's press conference," said Camilla Sutton, chief
currency strategist at Scotia Capital in Toronto. "We expect
President Draghi to sound notably cautious and EUR to weaken on
the back of it."
The euro fell 0.4 percent to $1.3535, edging down
from last week's peak of $1.3711, its highest since November
2011, with political uncertainty in Spain and Italy also
weighing. Some US$3.75 billion in euros changed hands on
Wednesday using Reuters Dealing.
Against the yen the euro was down 0.5 percent at 126.63 yen
, off a 34-month peak of 127.69 touched in Asian trade,
with the yen remaining under selling pressure on expectations of
aggressive monetary easing in Japan.
French President Francois Hollande called on Tuesday for a
target exchange rate to protect the currency from "irrational
movements", although the idea ran into immediate opposition from
The ECB is expected to leave interest rates on hold on
Thursday and the focus will be on Draghi's subsequent news
"The market is a bit nervous ahead of the ECB meeting ...
people would like to know what the ECB's position is as regards
Hollande's comments," said Antje Praefcke, currency strategist
at Commerzbank in Frankfurt.
She said she expected Draghi to be cautious and avoid
commenting directly on the currency, although he was likely to
face questions about it. If Draghi did comment on the
potentially harmful impact of a stronger euro, however, it could
be seen by the market as a kind of verbal intervention.
Analysts at Deutsche Bank said they were "turning more
neutral" on euro/dollar, though they still expect a $1.35-$1.40
range for the rest of the first quarter.
The euro is up 2.6 percent for the year to date against the
Banks have been repaying the ECB's ultra-cheap three-year
loans. This has acted as an effective tightening of euro zone
monetary policy at a time when the U.S. Federal Reserve and the
Bank of Japan are expanding their balance sheets.
The dollar was last down 0.1 percent against the yen at
93.52 yen after reaching a peak of 94.06 in Asian trade,
its highest since May, 2010. Traders reported hedging-related
demand and buying by longer-term investors, with supporting bids
at 93.50 yen.
Some US$2.76 billion in yen changed hands on Wednesday,
using Reuters Dealing.
News on Tuesday that current Bank of Japan Governor Masaaki
Shirakawa will step down three weeks earlier than planned
spurred the latest bout of yen selling.
Japanese Prime Minister Shinzo Abe, who has put the BOJ
under pressure to do more to spur the economy, has made it clear
he wants a governor who will be bold in easing monetary policy.
"As far as Japan is concerned they are exceeding market
expectations with the pace of policy implementation and that's
going to keep the yen under pressure," said Ian Stannard,
European head of FX strategy at Morgan Stanley in London.
He said Morgan Stanley's first-quarter forecast of 95 yen
was likely to be exceeded, and a test of 98 to 100 yen was