* Euro rises as German industry orders jump
* Investors wary of pushing euro lower before ECB meets
* U.S. Fed's Williams urges caution on trimming stimulus
NEW YORK, Nov 6 The euro gained broadly on
Wednesday after stronger-than-expected German industry orders
affirmed expectations the European Central Bank will not cut
interest rates this week despite a steep fall in inflation.
Even so, the outlook for the euro zone's common currency has
dimmed, with many market participants expecting the ECB to
strike a dovish tone at Thursday's monetary policy meeting.
The euro has dropped sharply from levels above $1.38 touched
before last week's data on inflation for the euro zone, which
fell to the lowest level in nearly four years. The inflation
numbers have fanned speculation the ECB may further ease
monetary policy at some point, although Wednesday's robust
German industry orders cemented views that the ECB will keep
interest rates unchanged on Thursday.
Only one of 23 money market traders polled by Reuters
expects a cut on Thursday.
"Our base case is that the ECB will strike a far more dovish
tone on Thursday, laying the foundation for an interest rate cut
and LTRO (long-term refinancing operation) at the Dec. 5th
meeting," said Camilla Sutton, chief currency strategist at
ScotiaBank in Toronto.
She said the risk of an ECB rate cut is real whether it
comes in November or December, adding that the ECB will work
hard to soften the euro and its impact on inflation. ScotiaBank
sees the euro at $1.31 by the end of the year.
The euro extended gains after data showed German factory
orders jumped by 3.3 percent in September, well above the 0.5
percent economists had expected.
In mid afternoon trading, the euro was up 0.3 percent at
$1.3516, well above Monday's low of $1.3441.
Ruben Segura-Cayuela, European economist at Bank of America
Merrill Lynch in London, said the euro is not overvalued but is
close to the upper end of its equilibrium range. He said the
euro zone cannot afford a stronger euro.
"The strength of the euro this year has already started
offsetting the periphery's competitiveness gains, which the
region achieved during a painful adjustment in recent years,"
The euro has gained 2.5 percent so far this year, on track
for its strongest yearly performance since 2007.
Another report on Wednesday showed that euro zone private
sector growth slowed less in October than previously estimated.
FED'S WILLIAM'S COMMENTS PRESSURE DOLLAR
The euro was also helped by comments from the president of
the San Francisco Federal Reserve Bank, John Williams, who said
late on Tuesday that the Fed should wait for stronger evidence
of growth momentum before trimming bond-buying.
The remarks weighed on the dollar.
But a report on Tuesday showing U.S. service-sector activity
picked up in October suggested the economy may not have suffered
badly from the partial U.S. government shutdown, and kept alive
the prospect of the Fed scaling back stimulus in the coming
Carl Hammer, chief currency strategist at SEB, said he
expected euro/dollar movements to be limited to within 1 or 2
cents either side of $1.35.
"An ECB rate cut would be negative for the euro because it
would play into the hands of short-term speculators as the
market is quite long of euros, but it would not really alter the
long-term picture," Hammer said, adding that a cut would have
limited effect because rates are already near zero.
The euro was up 0.5 percent against the yen while
the dollar gained 0.1 percent against the Japanese currency
Sterling earlier hit a one-week high against the
dollar and a one-month peak against the euro after
stronger-than-expected industrial output data.
"The outlook for the UK economy has improved notably
following a string of better-than-expected economic releases,"
said Eric Viloria, senior currency strategist at Forex.com.
"However, as expectations increase it tends to be more difficult
for positive surprises to continue."