* European analysts deeply divided on chances of ECB rate
cut or other easing
* Aussie spikes after data supports steady rates outlook
By Patrick Graham
LONDON, March 6 The euro traded flat on Thursday
with players split down the middle on the chances of the
European Central Bank taking more steps to support euro zone
growth and weaken base returns on the single currency versus its
With inflation stuck below 1 percent, the bank has a number
of options. Some believe it will announce a 10 basis point cut
in its main interest rates at 1245 GMT while others think it
will take more technical steps to tweak the volumes of cash it
has set flowing through the banking system to prop up lending
An ECB source told Reuters at the start of this week that
there would be unanimous agreement to end so-called
sterilisation of the bond purchases the bank has made as part of
efforts to ease the euro zone's debt crisis.
Any action on Thursday would be likely to weaken the euro.
With many terming the market as split 50-50 on the chances of
that happening, a decision to do nothing can also be expected to
send the currency the other way.
"Opinions are split so that the FX market reaction is likely
to be pronounced today regardless of which way the ECB decision
is going to go," analysts from Germany's Commerzbank said in a
The euro has performed robustly against the dollar so far
this year, confounding predictions by many banks it would fall
on the prospect of further loosening by the ECB at a time when
the U.S. Federal Reserve is going in the opposite direction.
Simon Derrick, strategist at Bank of New York Mellon in
London, said one element in the euro's strength had clearly been
the higher returns offered by peripheral euro zone bonds.
Any cut in already record low base rates reduces those
returns but yields on government securities in Spain or Italy
are still well above what investors can get in the United States
That makes it less likely that a further tweak to policy
would prove a watershed moment for the single currency.
"It is still the case that one of the few places investors
can pick up any kind of yield at all is in the euro zone
periphery," Derrick said.
"If the bank does nothing we will probably see a blip higher
in the euro against the dollar. If it cuts we may see some
sharper action on the downside."
The euro last stood almost unchanged at $1.3728.
The Australian dollar spiked to a nine-day high after upbeat
retail sales and trade data.
It has gained 3.5 percent since bottoming out in January
after a sustained campaign by the Reserve Bank to weaken the
The Aussie's fall was one of the dependable plays of late
2013 but the central bank changed its tune on the currency last
month as more signs emerged that growth was improving.
"The Aussie is seeing a change in behaviour as the data gets
better," said Derrick. "One thing that would really surprise
some people from here would be a move up in the Aussie, there is
a real chance this will catch a lot of people the wrong way
The Aussie gained 0.5 percent to $0.9028 just off a
one-week high of $0.9033.
Major currency markets have been pretty resistant to the
geopolitical tensions stemming from a standoff between Russia
and Ukraine but another day of relative quiet in the Crimea
helped both the euro and dollar gain against the yen.
The dollar rose to 102.74 yen in early European trade
and the euro to 141.04, both up almost half a percent.
The U.S. dollar index climbed to its highest for the
week at 80.272. It has since retreated to 80.155, partly due to
disappointing U.S. data on Wednesday.