March 29, 2019 / 8:45 AM / 7 months ago

FOREX-Euro headed for worst month since October

* Euro down 1.2 pct in March

* Dollar index on track for best month since Oct. 2018

* Benchmark US yields edge up, support dollar

* Graphic: World FX rates in 2019

By Tom Finn

LONDON, March 29 (Reuters) - The euro on Friday was headed for its worst month since October, weighed down by fears about economic growth and cautious signals from the European Central Bank.

Policymakers cut growth forecasts for the euro zone economy earlier this month and launched a new round of cheap loans to its banks.

Weaker-than-expected economic surveys from Germany and dovish signals from the ECB have pushed hedge funds to reduce their long euro positions.

The single currency has also been weighed down by speculation the ECB will introduce a tiered deposit rate, providing a sign that policymakers plan to keep interest rates low for longer.

“Eurozone growth forecasts for 2020 growth have fallen from 1.8 to 1.4 percent and that is consistent with a weaker euro and lower bond yields,” said Societe Generale strategist Kit Juckes.

The euro was a tad higher at $1.1228 but remained down about 1.2 percent for the month.

The dollar, meanwhile was poised on Friday for its strongest gain in five months as investors responded positively to a bounce in U.S. Treasury yields.

With many currencies on the defensive, the dollar has weathered a decline in benchmark Treasury yields to a 15-month low. Against a basket of key rival currencies, the U.S. currency was a shade higher at 97.217.

The dollar held strong even as data overnight showed the U.S. economy slowed more than initially thought in the fourth quarter of last year.

Sterling struggled again on Friday, last trading down 0.2 percent at $1.3013 after sinking more than 1 percent overnight as the prospects for a swift agreement on Brexit faded.

Traders were braced for more volatility in the pound ahead of another vote in parliament on Prime Minister Theresa May’s Brexit deal.

Many sterling investors are sticking to the sidelines creating a lack of liquidity and leaving the market prone to sharp currency swings. (Reporting by Tom Finn Editing by Raissa Kasolowsky)

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