* Eyes on ECB to clarify economic outlook, no rate cut seen
* Euro hits 4-week high vs dollar at $1.3131
* Worries remain on future of Fed stimulus
* European shares recover ground after recent sharp losses
By Richard Hubbard
LONDON, June 6 The euro hit a four-week high
against the dollar on Thursday as investors positioned for the
European Central Bank to leave rates unchanged, but uncertainty
over the U.S. Federal Reserve's next move kept equity markets on
The ECB cut its main interest rate to a record low 0.5
percent in May and was seen sitting tight as it waits for
further evidence of an economic recovery it has predicted will
emerge in the second half of the year.
That means the main focus will be President Mario Draghi's
news conference which follows Thursday's policy meeting, when
he is likely to trim the bank's economic forecasts and be
questioned on the future direction of policy.
"We think he (Draghi) will keep the door open for more
easing but it's not the time to do it today," said Piet Lammens,
a strategist at KBC in Brussels.
The stronger conviction for no change in policy followed
data suggesting the downturn across the region is starting to
ease, encouraging traders to push the euro up to $1.3131,
its highest level since May 9 and up 0.3 percent on the day.
The euro's rise dragged the dollar index to a four-week low
of 82.39. The U.S. currency also hit a four-week low of
98.86 yen earlier on Thursday, though it then recovered to trade
at 99.25 yen, up 0.2 percent.
"The dollar's longer-term bullish outlook remains intact as
the Fed will eventually start scaling down its stimulus if jobs
continue to be added, while the Bank of Japan will expand its
monetary base," said Yuji Saito, director of foreign exchange at
Credit Agricole in Tokyo.
CENTRAL BANK DAY
Meanwhile another central bank, the Bank of England, is also
widely expected to leave its policies on hold at the conclusion
of its final policy meeting under current Governor Mervyn King
UK data on manufacturing, services and construction sectors
have all pointed to a pick-up in activity, tempering
expectations that the new governor, Mark Carney, who takes over
in July, will turn to aggressive monetary easing in the near
As long as there are no surprises from either the ECB or the
Bank of England, the market's focus is likely to quickly switch
to Friday's U.S. non-farm payrolls report which could determine
when the Federal Reserve begins tapering its bond-buying.
A strong jobs report would add to speculation the Fed could
begin cutting back its $85 billion a month bond-buying programme
before the end of the year, putting pressure on all riskier
Fears about this have seen the broad FTSEurofirst 300 index
shed nearly 10 percent over the past nine trading days,
although it recovered slightly on Thursday to be up 0.2 percent
by mid-morning. London's FTSE 100, and Frankfurt's DAX
were around 0.1 to 0.3 percent firmer.
Earlier, another volatile session for Japan's Nikkei index,
which ended below 13,000 for the first time in two months,
undermined Asian markets, sending them to fresh 2013 lows and
leaving MSCI's world equity index little
In fixed income, German Bund prices drew support from the
expectations the ECB will keep monetary policy ultra-easy and
from the Fed uncertainty but stayed within narrow ranges.
Fresh bond auctions by Spain and France during the morning
met good demand from yield-hungry investors but both saw a
slight rise in yields, reflecting the doubts about the Fed's
future stimulus policies.
Oil prices were caught between the worries about the Fed
cutting back on monetary easing and evidence of a big drop in
U.S. oil stocks, leaving Brent crude steady at around $103 a
"The market direction will depend a lot on what the (U.S.)
jobs data shows," said Victor Shum, vice-president of energy
consultancy IHS Energy Insight. "But overall, I am bearish on
prices because supplies are ahead of demand."