* Euro drifting around $1.3600, near four-month trough
* ECB expected to ease policy at its June 5 meeting
* Rate decision due 1145 GMT, news conference at 1230 GMT
By Ian Chua
SYDNEY, June 5 The euro languished at four-month
lows early on Thursday with investors firmly sidelined as they
waited to see what measures the European Central Bank would
implement to tackle the threat of deflation.
The ECB is widely expected to cut all of its interest rates,
which would push the deposit rate into negative territory for
the first time. It is also seen offering longer-term loans
linked to further lending, but stop short of following the Bank
of Japan in launching large-scale asset purchases.
The euro traded at $1.3601, not far from a four-month
trough of $1.3585 plumbed on Tuesday. It has slumped almost 3
percent from highs near $1.4000 after ECB President Mario Draghi
on May 8 prepared the market for possible policy action at the
June 5 review.
"Given market pricing and high expectations for ECB action,
the risks of near-term disappointment are not inconsequential,"
Marvin Barth, strategist at Barclays in London wrote in a note
"However, we are confident the ECB will undertake necessary
policies to raise inflation from the current worrisome levels.
Accordingly, we would recommend fading any post-meeting
disappointment that leads the euro to rally."
The ECB will announce its rate decision at 1145 GMT and
President Mario Draghi will give a news conference at 1230 GMT.
With the common currency on the backfoot, the dollar index
held near a four-month peak of 80.681 set earlier in the week.
It was last at 80.653 .
U.S. data was mixed on Wednesday but still supported views
the world's biggest economy is recovering from a weather-induced
slowdown early in the year.
Data from the Institute for Supply Management showed an
acceleration in services sector growth, while figures from
payrolls processor ADP showed companies hired far fewer workers
than expected in May. That could raise the risk of a
disappointment in non-farm payrolls on Friday.
The yen, meanwhile, appeared to be stabilising after falling
in the past few sessions. The dollar fetched 102.70,
having gained more than 1 percent since Friday, while the euro
bought 139.65 following a 1.2 percent rally from
137.98 a week ago.
Traders said the expiry of large options in dollar/yen this
week could keep the spot market subdued.
Also looking at the prospect of a quiet session is the
Australian dollar, which appeared to be capped around the 93
U.S. cent mark for now.
Upbeat data this week showing Australia posted its fastest
growth in two years last quarter and a central bank that is on
hold for what is likely to be an extended period have propped up
But repeated attempts to break above 93 cents have been met
with good selling interest, suggesting the Aussie would probably
need a stronger reason to rally. It was last at $0.9278.
There is little in the way of economic news out of Asia to
distract markets from the ECB. Australia's trade data is due at
0130 GMT, followed by a private survey on China's services
sector expected around 0145 GMT.
(Editing by Shri Navaratnam)