* Euro touches lowest since Sept. 18, implied vols rise
* Speculation grows ECB may loosen policy as early as this
* Australian dollar rises on stronger retail sales
By Wanfeng Zhou
NEW YORK, Nov 4 The euro edged higher from a
six-week low against the dollar on Monday helped by data showing
manufacturing in the euro zone accelerated last month, but gains
were limited by speculation the European Central Bank may soon
cut interest rates.
Traders said the euro could stay under pressure before the
ECB's policy meeting on Thursday. Plunging inflation in the
region has led a growing number of banks, including UBS and RBS,
to forecast a cut in the refinancing rate as soon as this week.
"European manufacturing PMIs show marginal improvement but
(the data) doesn't alleviate concerns of a dovish ECB later in
the week," said Scott Smith, market analyst at Cambridge
The euro gained 0.1 percent to $1.3497, after a
survey showed the manufacturing Purchasing Managers' Index (PMI)
rose to 51.3 from September's 51.1, in line with an earlier
flash reading and with the consensus forecast of economists.
Earlier, the euro fell to $1.3441, according to Reuters
data, its lowest level since Sept. 18 and well below a two-year
high of $1.3831 struck on Oct. 25.
The drop in the euro, which shed more than 2 percent last
week, triggered a rush to hedge against further weakness.
One-month euro/dollar implied volatility, a gauge of
how choppy a currency is expected to be, jumped to its highest
in two months at 7.525 percent.
A cut in the deposit rate, at which banks park excess cash
with the ECB, to negative territory would make holding the euro
expensive and force investors to sell it. It would also make the
euro a funding currency for carry trades, where investors borrow
in a cheap currency to buy a higher-yielding one.
"While we don't expect the ECB to cut the refi rate this
week, given the downside risks to inflation from a stronger
currency, we expect (ECB chief) Mario Draghi to possibly flag a
cut in the deposit rate. That would be negative for the euro,"
said Manuel Oliveri, FX strategist at Credit Agricole.
The euro's bounce nudged the dollar index down from a
six-week high of 80.930 hit in Asia, the strongest since
mid-September. It last stood at 80.658, down 0.1 percent on the
The dollar had risen in Asia after comments from Federal
Reserve Bank of Dallas President Richard Fisher. Speaking at a
conference of business economists in Sydney, Fisher said he was
concerned that corporate credit spreads have narrowed too much
and added that he does not see the Fed's balance sheet rising to
$6 trillion or more.
Against the yen, the dollar was little changed at 98.66 yen
The Australian dollar edged higher, supported by stronger
than expected retail sales. It rose 0.6 percent to $0.9497
, edging away from Friday's three-week low of $0.9421.