* Euro hit overnight after strong U.S. data, Fed
* Fed minutes cautious on QE3 taper, but U.S. yields rise
* No policy moves expected from ECB meeting, rhetoric eyed
* Bullish sterling just off one-year high vs euro
By Patrick Graham
LONDON, Jan 9 The euro recovered some ground ahead of a European
Central Bank news conference on Thursday after falling to one-month and one-year
lows against the dollar and British pound, reflecting concern over Europe's
poorer growth outlook.
The dollar traded close to seven-week highs against a basket of major
currencies after an upbeat U.S. private-sector jobs report drove U.S. short-term
yields and market rates higher and raised expectations for key payrolls data
later this week.
But sterling was also a winner, pumped higher over the past six months by
expectations an improving economy will make the Bank of England the first major
central bank to raise interest rates next year.
The pound has come back from a blip early this week, which followed its
failure to rise past $1.66, and alone among the major currencies it rose against
the dollar after Wednesday's upbeat jobs numbers.
The market has shown some signs of nerves about the chances of the BoE
making an extraordinary post-meeting statement on Thursday to tweak its message
on unemployment and make clear it is in less of a hurry to raise interest rates.
Without such a statement, most analysts said the currency should remain
"We view anything from the BoE as highly unlikely," said Tom Levinson,
foreign exchange strategist with ING in London. "Assuming such an outcome, GBP
might track higher, with EUR/GBP testing 0.8230/35 support."
By 0848 GMT, sterling was trading around 0.2 percent down on the day, but at
82.69 pence was within striking distance of the previous day's one-year highs.
The euro also recovered 0.24 percent from a one-month low against the dollar
to trade at $1.3609.
The common currency is likely to stay under pressure in the lead up to the
European Central Bank policy meeting later on Thursday and could fall further if
the ECB highlights the risk of disinflation, some traders said.
But with the bank not seen delivering any swift easing of policy, currency
strategist at Societe Generale strategist Kit Juckes said those betting on a
further fall for the euro were likely to be disappointed.
"The ECB ought to have rates at -2 percent ... but no one thinks the ECB
will do anything," he said. "$1.38 is more likely than $1.34 on a 1-month view."
The dollar index was slightly lower on the day at 80.931. It rose as
far as 81.166 on Wednesday, a high not seen since late November, after the
weekly ADP report showed private employers added a bigger-than-expected 238,000
jobs in December, the strongest increase in 13 months.
That lifted expectations that non-farm payrolls on Friday would surprise on
the upside and pushed 2-year Treasury yields to a four-month high of 43 basis
"The ADP numbers were quite strong, and if the payrolls report surprises on
the upside too, that would help push up the dollar," said Ayako Sera, senior
market economist at Sumitomo Mitsui Trust Bank.
Minutes from the Federal Reserve's Dec. 17-18 meeting showed the central
bank wanted to err on the side of caution even as it began to scale back its
But market participants have begun to price in tighter policy sooner rather
than later, with the tapering process expected to be completed by the end of