* Euro flat after dip in Asia ahead of ECB decision
* ECB not expected to cut rates yet but may sound dovish
* Yen sets fresh 10-week low versus dollar
(New throughout, changes dateline from previous
By Patrick Graham
LONDON, April 3 The euro inched lower against
the dollar on Thursday ahead of the European Central Bank's
monthly policy decision and news conference, eyed for signs of
whether the bank is any closer to doing more to boost growth.
Unlike in January and February, there are few voices in the
market predicting action from the bank either in the form of a
cut in some of its official interest rates or other action to
push more cash into the euro zone economy or its banks.
A number of ECB policymakers have played down any concerns
about low inflation, casting it as temporary, and President
Mario Draghi's own line is that the euro zone is in no danger of
falling into a debilitating cycle of deflation.
But many in the market have also read comments from a number
of ECB officials in the past month as evidence that the bank is
concerned by the euro's gains so far in what was expected to be
a strong year for the dollar.
"The market generally was wrong in expecting policy action
or a strong message from the ECB over the past couple of months
and so I think people are possibly overcautious this time," said
Jane Foley, a strategist with Rabobank in London.
"The market is not anticipating action today, but I think
Mr. Draghi may find a line or two that sound dovish. If he does
that may weaken the euro somewhat."
After gaining almost half a cent overnight, the dollar was
flat against the euro at $1.3767 in early European trade.
The main move of the past two weeks on major currency
markets has been the dollar's steady march higher against the
yen, awakening hopes that the greenback may finally be set to
deliver on the break higher predicted by many banks in January.
The dollar has gained almost 3 percent against the yen since
U.S. Federal Reserve chief told markets on March 19 that the Fed
might raise interest rates next spring. It hit a new 10-week
high overnight before retreating a touch but was still higher
than a day earlier at 103.89 yen.
"There is a lot of resistance (to more dollar gains) around
104 yen and we may not break that today," said a dealer with one
bank in London. "The key to any move higher will be non-farm
The head of the International Monetary Fund on Wednesday
called on the ECB to ease policy, warning "low-flation" in
advanced economies risked undercutting an already sluggish
But U.S. data has generally improved after a dip in fortunes
now put down largely to harsh winter weather. Worries over China
and Ukraine that prompted investors to seek the relative
security of the yen have also slipped at least momentarily off
"I do get the sense that the market is becoming much more
constructive about the dollar," said Rabobank's Foley.
"The March numbers should be relatively clean of harsh
weather and the market thinks payrolls will be relatively
strong. As long as we don't see any big rush into safe havens,
the dollar is heading higher against the yen."
Foley said in contrast she expected the euro to remain
robust, pointing to the currency area's trade surplus and
inflows of capital back into the southern member states worst
hit by four years of turmoil over public finances.
Still, a Reuters poll of over 60 foreign exchange
strategists taken this week predicted the euro would fall to
$1.37 in one month, $1.33 in six and $1.29 in a year.
"If we do get actual rate cuts (from the ECB), we would look
for EUR/USD to fall rather sharply towards 1.36, with a decision
to introduce a negative deposit rate likely to see a
particularly large reaction," analysts at BNP Paribas wrote in a
note to clients.
"Introducing new liquidity measures would have a smaller
impact...while a simple repeat of last month's disappointingly
neutral message could squeeze weaker shorts out and see EUR/USD
test back towards 1.39."
(Additional reporting by Ian Chua in Sydney and Masayuki Kitano
in Singapore; Editing by Toby Chopra)