* Rising ECB rate cut expectations keep euro subdued
* Trading light due to U.S. holiday
* Euro falls to 11-1/2 yr low vs Swedish crown
By Michelle Chen and Anirban Nag
LONDON, July 4 The euro slipped against the
dollar and the yen on Wednesday as grim economic data
strengthened expectations the European Central Bank is about to
cut interest rates, likely keeping the shared currency under
It slumped to a 11-1/2 year low against the higher-yielding
Swedish crown after Sweden's central bank kept interest rates
unchanged and only slightly trimmed its forecasts for future
borrowing costs, despite risks from the euro zone crisis.
The euro was also under pressure as Spanish government bond
yields crept higher before an auction on Thursday, although
traders said some investors were on the sidelines given a U.S.
market holiday that kept volumes on the low side.
The euro shed 0.2 percent against the dollar to
hit$1.2565, keeping well below resistance at $1.2693, a high
reached last Friday after European leaders hammered out a deal
to tackle the region's debt crisis.
"The market looks primed for a 25 basis point cut by the
ECB, but something more like a liquidity injection would be
needed to lift the euro," said Paul Robson, currency strategist
"Investors will also want to see if the ECB President (Mario
Draghi) will highlight downside risks to growth and inflation,
which will set the ground for more easing."
Pressure on the ECB to ease policy has gathered pace as
tight credit conditions added to fiscal tightening and austerity
to deepen the region's economic slowdown.
Near-term inflation pressures have also eased following a
sharp drop in energy prices over the last couple of months,
giving extra scope for a rate cut.
Data on Wednesday showed Germany's services sector
unexpectedly stagnated in June. While a contraction in France's
services sector eased, business expectations slumped to their
lowest in three years, underlining how bleak conditions in
Analysts said while a slew of measures to support growth
from the ECB could help the euro, any disappointment could put
the currency under fresh pressure and bring the June 28 low of
$1.2407 back into focus.
"I'm looking for the euro to fall further. The only scenario
I see for the euro zone if it's going to stay together is much
more significant easing and involvement from the ECB," said John
Hardy, currency strategist at Saxo Bank, who forecast the euro
to hit $1.23 in one month.
The euro fell 0.3 percent against the yen to 100.31
after Japanese investors received principal on
redeemed euro zone bonds which was swiftly converted to yen,
The dollar was up 0.4 percent against the Japanese
currency at 79.82 yen.
Recent weak data out of the United States and Europe has
spurred expectations of more stimulus from the ECB and the
While easing global monetary conditions should bolster risk
appetite and may lend some support to the euro, it is likely to
underperform the growth-linked currencies as a lower interest
rate would be euro-negative. Flooding markets with extra cash
tends to drive investors to chase higher-yielding currencies.
"We are short euro against the commodity currencies like the
Aussie, the New Zealand dollar and the Swedish crown," said
Stuart Frost, head of Absolute Returns and Currency at fund
managers RWC Partners.
The euro fell to a 4-1/2 month low against the Australian
dollar around A$1.2211.
The common currency slid to an 11-1/2 year low of 8.6800
against the Swedish crown as long-term investors and
hedge funds sold the euro after the Riksbank kept rates
unchanged at 1.5 percent as expected.
Traders said a hedge fund sold and stop loss orders were
triggered on the break of 8.70 crowns, but many were cautious of
pushing the crown higher given Sweden's exposure to the euro
zone and the possibility of future Riksbank rate cuts.