* Euro wallows near 6-week lows versus dollar
* Sterling in spotlight after slumping overnight
(Updates prices, comment)
By Shinichi Saoshiro
TOKYO, May 15 The euro wallowed near six-week lows against the
dollar on Thursday, weighed by lower government debt yields amid rising
expectations the European Central Bank is poised to cut rates at next month's
A dovish ECB has helped push down yields on German and U.S. government debt,
with the benchmark U.S. 10-year note yield slipping to a six-month low on
The German Bunds and U.S. Treasury yield moves are often correlated even
though the U.S. economy is seen growing faster than Europe, which is expected to
eventually send Treasury yields higher.
Reuters on Wednesday quoted sources as saying the ECB is preparing a package
of policy options for its June meeting, including cuts in all its interest rates
and targeted measures aimed at boosting lending to small- and mid-sized firms
The euro hit a 2-1/2 year high of $1.3995 against the dollar last
week but heightened speculation of ECB easing, in part spurred by central bank
officials expressing concern over the currency's strength, knocked the single
currency to a six-week low of $1.3688 on Tuesday.
It was fetching $1.3719, little changed from late New York trade on
Wednesday and within striking distance of that six-week trough.
"Except for quantitative easing, which it likely won't resort to for a
while, the ECB does not have a lot of easing options at its disposal to keep the
euro down," said Masafumi Yamamoto, market strategist at Praevidentia Strategy
"Therefore it will have to keep sending a steady message, saying it will
ease a step at a time. The various ECB officials will also have to march in
unison and convey the same message, especially with the dollar also showing
signs of weakness," he said.
The market is eyeing the euro zone first-quarter GDP and April CPI data due
later in the session for immediate cues.
The dollar slipped 0.1 percent to 101.85 yen after losing 0.35
percent on Wednesday, tracking the fall in Treasury yields.
It briefly fell to the day's low of 101.66 yen after news Japan's economy
grew in the January-March quarter at its fastest pace more than two years, but
its descent was short-lived.
"Strong economic indicators tend to be associated with expectations of Bank
of Japan foregoing further easing, so there may have been a knee-jerk reaction,"
said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.
"But there are firm bids for the dollar in the middle 101-yen range and
participants are wary of that too, keeping movements confined in range."
The British pound was also in the spotlight after it slumped overnight when
the Bank of England surprised markets by saying it had no plans for tightening
monetary policy in the near term.
The BOE said Britain's economic recovery remained in its early stages,
although it noted a strong bounce-back in the job market and lowered its
forecast for unemployment over the next couple of years.
Against the pound, the euro traded at 81.80 pence, after
rebounding on Wednesday from a 16-month low of 81.26 pence.
Sterling traded at $1.6773, not far from a one-month low of $1.6753
(Editing by Shri Navaratnam and Eric Meijer)