Euro weakens against dollar before ECB meeting

NEW YORK (Reuters) - The euro weakened against the U.S. dollar on Wednesday as investors focussed on whether European Central Bank President Mario Draghi will give any indications that the central bank will begin tapering its bond purchase program when it meets on Thursday.

U.S. dollar and euro banknotes are seen in this picture illustration, March 9, 2015. REUTERS/Dado Ruvic/Illustration/File Photo

The ECB may defer until December any changes to its asset purchase, sources familiar with the discussion said last week.

“Ahead of the ECB there’s a little bit of lightening up of the euro. There’s some focus on the possibility that Draghi will push back very aggressively against recent talk of tapering,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.

The euro slipped 0.11 percent against the greenback to $1.097.

Any signal that the ECB plans to reduce bond purchases could roil bond markets globally, and create volatility for currencies.

“If (Draghi) gives any signal in support of tapering at some point, that would be very toxic for fixed income globally,” Franulovich said.

The dollar has been largely tracking U.S. Treasury yields in recent weeks on the view that the U.S. Federal Reserve is likely to raise interest rates when it meets in December.

The greenback has rallied around 3 percent since the end of September, mirroring a climb in benchmark U.S. Treasury yields to a four-month high above 1.8 percent.

The dollar index against a basket of six major currencies was little changed on Wednesday after slipping slightly the two prior sessions as investors continued to evaluate the likelihood of a December rate hike, and took profits from the recent dollar rally.

The index was up 0.02 percent at 97.895.

The Canadian dollar weakened after Bank of Canada cut its growth forecast and Governor Stephen Poloz said the central bank had considered easing monetary policy.

“The bank did maintain its dovish tone which means we shouldn’t price out rate cuts just yet,” said Bipan Rai, senior macro and foreign exchange strategist at CIBC in Toronto.

The Australian dollar, meanwhile, strengthened after data showed that China’s economy expanded at a steady 6.7 percent in the third quarter and looks set to hit Beijing’s full-year target.

“That’s indicative of still healthy demand, especially for commodities. In the immediate-term that’s supportive for the Australian dollar,” sadi Rai.

The Canadian dollar fell 0.15 percent against the greenback to $1.31 and the Australian dollar gained 0.67 percent against the U.S. currency to $0.77.

Editing by Jeffrey Benkoe and Chizu Nomiyama