* Euro drifts near 5-week low vs USD, 16-month low on
* WSJ report says Bundesbank willing to back ECB easing next
month if needed
* Sterling awaits BoE report and UK jobs data
(Updates levels, adds comments)
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, May 14 The euro languished
near five-week lows against the dollar on Wednesday, having come
under renewed pressure as markets grow more convinced the
European Central Bank will ease policy next month.
The euro inched up 0.1 percent to about $1.3715,
staying within sight of Tuesday's low near $1.3688. A break
below the April 4 trough of $1.3672 would take it back to levels
not seen since late February.
It has slid roughly 2 percent since Thursday when ECB
President Mario Draghi said the bank was ready to take action
next month to boost the euro zone economy if updated inflation
forecasts merit it.
The euro's latest decline was sparked by a report in the
Wall Street Journal that said the Bundesbank was willing to back
an array of stimulus measures from the ECB next month, including
a negative rate on bank deposits and purchases of packaged bank
loans if needed to keep inflation from staying too low.
"Euro will remain offered on rallies into the June meeting,"
said Jeffrey Halley, FX trader for Saxo Capital Markets in
Singapore, referring to the ECB's policy meeting next month.
"It has become the carry trade funding currency of choice,
which has added to the selling pressure," he added.
In carry trades, investors sell low-yielding currencies such
as the euro to fund their investment in higher-yielding
currencies and assets.
Halley added that the euro could head back toward the top of
its recent range if the ECB holds off from any additional
monetary stimulus in June.
Against the Australian dollar, the euro touched a near
six-month low of A$1.4589. Versus sterling, the euro
stood near 81.41 pence, struggling to pull away from Tuesday's
16-month low of 81.35 pence.
"The euro's fading resilience since last week's ECB meeting
suggests the currency should remain vulnerable to softer data
including today's March eurozone industrial output where our
economists expect a 0.2 percent decline," analysts at BNP
Paribas wrote in a note to clients.
Traders said the near-term outlook for sterling hinges on
the Bank of England inflation report and UK employment data due
later in the day. Both could potentially provide fresh signals
on the timing of an expected rise in UK interest rates.
JPMorgan analysts said they were expecting the BOE report to
provide some confirmation of market expectations for gradual
tightening beginning early next year, "although this should be
tempered by a BOE very much comfortable with the absence of
The recent pressure against the euro has helped support the
dollar versus a basket of major currencies. The dollar index
last stood at 80.046, having scaled a five-week high of
80.180 on Tuesday. Against the yen, the dollar eased 0.1 percent
to 102.17 yen.
(Editing by Jacqueline Wong)