* ECB's Draghi speech may weigh on euro
* Euro zone PMIs and German IFO a key focus
* Chinese yuan drops to 14-month low vs dollar
(Adds fresh quotes, details)
By Anirban Nag
LONDON, April 22 The euro hovered near a
two-week low against the dollar on Tuesday and fell to a
two-month low against the British pound, as expectations the ECB
will try to halt any further strengthening kept investors away
from the single currency.
European Central Bank President Mario Draghi recently made
clear the euro's strength is a possible trigger for the central
bank to ease monetary policy. He is scheduled to give a keynote
speech in Amsterdam on Thursday.
ECB executive board member Benoit Coeure said on Tuesday
that there was further margin to reduce the main interest rate
below 0.25 percent and that the strength of the euro could be
keeping inflation too low.
But until the ECB takes action, traders said the euro was
unlikely to weaken much, thus keeping it tied to a range.
The euro, which slipped to a two-week low of $1.3785 earlier
in the day was trading slightly higher at $1.3815 amid
low volumes as traders returned from the long Easter weekend. It
was down 0.1 percent against the pound at 82.01
pence, its lowest level since late February.
Investors are also awaiting euro zone 'flash' PMI surveys on
Wednesday while the German IFO institute's monthly reading of
business sentiment in Europe's largest economy
is due a day later.
Last week, the monthly German ZEW poll showed investor and
analyst sentiment falling for the fourth month in a row in April
due to the crisis in Ukraine, and another set of subdued
economic data could add to pressure on the ECB to ease.
"Euro/dollar is likely to trade with a weaker bias this week
given the German IFO and Draghi's speech coming up," said Yujiro
Goto, currency analyst at Nomura. "Any downside will be limited
though, as investors will await the inflation data due next
Very weak inflation in the euro zone, due partly to the
strong exchange rate, has raised pressure on the ECB to further
loosen monetary policy to stimulate growth.
In the past few weeks Draghi has brought the currency into
focus and warned that any further strengthening could lead the
euro zone's central bank to use unconventional tools such as
On the other hand, analysts said the dollar was starting to
look attractive on the back of improving U.S. data and earnings.
"Better-than-expected company earnings could also encourage
renewed inflows into the U.S. stock markets and underpin the
dollar," said Citi analyst Valentin Marinov.
The dollar was steady at 102.575 yen, after rising as
high as 102.73 yen, its highest since April 8. The yen suffered
a mild setback on Monday after data showed Japan's export growth
slowed to its weakest in a year, adding pressure on policy
makers to inject more stimulus.
WEAK CHINESE YUAN
China's weakening currency was a focus after the People's
Bank of China set a lower midpoint of the band within which its
currency is allowed to trade.
The offshore yuan hit a fresh 14-month low of 6.2335 to the
dollar on worries over a slowing Chinese economy and following
Beijing's clampdown on one-direction bets on the yuan's gains
So far there has been limited spillover into G10 currencies
from the weaker yuan, but any pick-up in volatility could see
investors prefer safe-haven and liquid currencies. The Chinese
currency has lost around 2.8 percent against the dollar since
the start of the year.
Meanwhile, the New Zealand dollar rose 0.3 percent to
$0.8592 as investors gear up for the Reserve Bank of
New Zealand to hike interest rates for a second time this year.
(Editing by Mark Trevelyan)