* Euro hits lowest since Sept. 18, implied vols rise
* ECB meeting on Thursday key for common currency
* Aussie dollar up after firm retail sales
By Anirban Nag
LONDON, Nov 4 (Reuters) - The euro struggled near a six-week low on Monday, as investors and speculators sold the single currency on mounting expectation that the European Central Bank (ECB) may loosen policy in the near term.
The euro skidded to as low as $1.3442 on trading platform EBS, its lowest level since Sept. 18 in thin trade in Asia. It later trimmed its losses and was last flat on the day at $1.3495, well below a two-year high of $1.3833 struck on Oct. 25.
The sharp sell-off in the euro, which shed more than 2 percent last week, triggered a rush to hedge against further weakness. The one-month euro/dollar implied volatility , a gauge of how choppy a currency will be, jumped to its highest in two months at 7.525 percent.
Traders said the euro is likely to stay under pressure before the ECB’s policy meeting on Thursday. After data last week showed a plunge in euro area inflation, a growing number of banks, including UBS and RBS analysts, believe that a cut in the refinancing rate could come as soon as Thursday.
The ECB’s refinancing (refi) rate is at a record low of 0.5 percent.
“The market is pricing in a risk of some action from the ECB this Thursday, perhaps a bit ambitiously. We remain of the view that the euro will continue to struggle and investors will fade into rallies,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.
“The bias remains for it to ease as markets drive the ECB to address disinflationary pressures building in the euro zone.”
A second reading of PMI surveys out of the euro zone is likely to confirm that the pace of recovery, especially in the service sector, may have lost some momentum.
“Even if a refi rate cut is not delivered by the ECB this week, it is likely that President Mario Draghi will deliver more dovish rhetoric, setting up a rate cut at their next meeting,” Lee Hardman, currency analyst at Bank of Tokyo Mitsubishi UFJ, wrote in a note.
Pressure on the euro lifted the dollar to a six-week high versus a basket of major currencies. The dollar index rose to 80.930 in Asia, its highest level since Sept. 18. It last stood at 80.652, flat on the day.
The timing of the euro’s drop against the dollar in Asia seemed to roughly coincide with comments from Federal Reserve Bank of Dallas President Richard Fisher.
Speaking at a conference of business economists in Sydney, Fisher said he was concerned that corporate credit spreads have narrowed too much and added that he does not see the Fed’s balance sheet rising to $6 trillion or more.
The Australian dollar edged higher, supported by stronger than expected retail sales. Another factor supporting the Aussie dollar was upbeat Chinese data on Sunday showing China’s services sector expanding at its fastest pace in 13 months in October.
The Australian dollar rose 0.7 percent to $0.9500, edging away from Friday’s three-week trough of $0.9421.