* Euro dips vs dollar, approaches Friday's 2-1/2 month low
* Single currency hurt by weak euro zone data
* Growing bets on ECB rate cut this week
By Anooja Debnath
LONDON, March 4 The euro fell against the dollar
on Monday as a stream of weak euro zone economic data in recent
days fuelled speculation the European Central Bank could cut
interest rates sooner than previously expected.
Although a Reuters poll last week showed economists expected
the ECB to keep rates on hold this Thursday, some strategists
said euro weakness would persist on growing expectations bank
chief Mario Draghi would hint at future cuts.
Poor euro zone sentiment and unemployment data since last
week could compel the ECB to revise down its outlook of the
currency bloc's economy and consider earlier rate cuts, they
Italy's inconclusive election last week also weighed on the
currency. Analysts are concerned that without a stable
government, the country will be unable to pass reforms required
to get its borrowing and debt under control.
"The ECB will be in defensive mode and they may cut rates
this meeting, while the political uncertainty in Italy is a good
reason to be bearish on the euro, which could tend to trade
lower," said John Hardy, currency strategist at Saxo Bank.
The euro hit a session low of $1.2982, not far from a
2-1/2 month low of $1.2966 touched on Friday, after data showed
euro zone sentiment tumbled in March on renewed political
uncertainty in Italy.
The single currency was last down 0.2 percent on the day at
$1.2998. Option expiries at $1.3000 could keep the euro pinned
around that level. Analysts said any rebounds from here would be
short-lived as they would sold into.
Options barriers were cited at $1.2950, which could limit
further euro falls for now. A break through that level could see
it fall to its next support at $1.2850, its 200-day moving
The benchmark one-month risk reversal, which
measures the relative demand for put and call options, was dealt
at 1.35 vols in favour of euro puts -- bets that the currency
"The euro is down on a general risk-off mood... Draghi could
be more dovish and there could be a rate cut this week. If not,
he could signal something is in the offing," said Jane Foley,
senior currency strategist at Rabobank.
Citi said it had recommended investors add a three-month
euro put/dollar call option, targeting $1.27.
Euro zone services Purchasing Managers' Index surveys on
Tuesday and growth data on Wednesday could push the euro even
lower if they undershoot forecasts.
"We suggest watching this week's release of fourth-quarter
GDP. A further weak reading here will put the euro under
additional pressure... euro/dollar has already tested and
slightly breached the $1.30 area. A sustained move below targets
1.2660, in our view," analysts at Morgan Stanley said in a note.
The gloomy euro zone data contrasted with a jump in U.S.
manufacturing and this helped push the dollar to a six-month
high of 82.509 against a basket of currencies on Friday .
It last stood at 82.379, up 0.1 percent on the day.
Broad U.S. spending cuts that automatically kicked in on
Friday and threaten to dampen economic growth have so far not
hurt the U.S currency. In fact, currency speculators' bets in
favour of the dollar surged in the week ending Feb. 26.
The dollar was flat at 93.56 yen. The Japanese
currency showed little reaction to comments from Haruhiko
Kuroda, the government's nominee as next Bank of Japan governor,
who set out aggressive policy ideas on Monday.
Investors discarded growth-linked currencies such as the
Australian dollar after China announced
measures to tighten curbs on the property market. The Aussie
fell to a near eight-month low of $1.0116 and was last down 0.7
percent on the day at $1.0135.