5 Min Read
* 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 SINGAPORE/SYDNEY)
By Patrick Graham
LONDON, April 3 (Reuters) - 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 payrolls tomorrow."
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 global recovery.
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 the agenda.
"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)