* Dollar index near highest in nearly 8 weeks
* Upbeat U.S. data helps lift dollar sentiment
* Dollar/yen hovers in sight of 2-week high
(Releads with European trading, changes dateline from previous
By Patrick Graham
LONDON, May 28 The euro traded within sight of a
three-month low on Wednesday as expectations solidified for a
multi-pronged attack on monetary policy by the European Central
Bank next week.
A number of banks have been reluctant to continue to sell
the euro ahead of the central bank's policy meeting, speculating
that the scale of action it takes to bolster the economy - and
reduce euro zone interest rates - may yet disappoint markets.
But comments this week by ECB President Mario Draghi
were read as confirming the bank is on course to
ease policy significantly. Many banks now expect cuts in more
than one of its main rates as well as targeted steps to force
more credit into the economy.
"It does feel like something is finally beginning to change
on the euro," said Neil Mellor, a strategist at Bank of New York
Mellon in London.
"A lot is riding on Draghi's shoulders, but if he does
confirm expectations (of strong action) then we could see the
euro slide deepen."
The euro was down 0.1 percent on the day at $1.3623
, just 10 pips off a three-month low of $1.3612 plumbed
Mellor pointed to the slowing of a rally in debt prices
across the euro zone's indebted southern periphery as evidence
that capital inflows to Europe may be slowing.
But the single currency has also drawn support from a number
of other factors this year including China's intervention to
weaken the yuan and the subsequent recycling of the dollars it
purchased in doing so into euros.
The Chinese currency fell further on Wednesday after
its biggest daily loss in a month against the dollar a day
earlier, hit by negative news from the property sector.
Top residential property developer China Vanke Co Ltd
said the days of rapid growth in the real estate
sector were over, indicating a government clampdown on
speculative investment and easy credit has gained traction.
The dollar held steady near an eight-week peak against a
basket of major currencies, having edged up on encouraging U.S.
The dollar index last stood at 80.404, staying near a
high of 80.470 set on Tuesday, its highest level since early
Dollar bulls took heart after data on Tuesday showed orders
for long-lasting U.S. manufactured goods unexpectedly rose in
April and consumer confidence perked up in May.
Against the yen, the dollar held steady near 101.85 yen
, staying within sight of a near two-week high around
102.14 yen that had been set on Tuesday.
"I think it's okay to stick with a basic stance of buying
(the dollar) on dips," said a trader for a Japanese bank in
While Japanese exporters may sell the dollar going into the
month-end, those flows are not as large as they once were, the
On the other hand, there has recently been talk of some
yen-selling interest among Japanese investors, he said, adding
that flows out of Japan could help support the dollar versus the
Japan's trade deficits are seen as a supportive factor for
the dollar versus the yen over the medium term, as they suggest
that net foreign exchange flows generated by the country's
exports and imports are tilted toward yen-selling.
(Editing by John Stonestreet)