NEW YORK (Reuters) - The euro retreated to a 10-day low against the dollar on Monday as investors focused on a European Central Bank meeting later in the week that could pave the way for further stimulus to boost inflation in the euro zone.
Although most investors believe the ECB will wait until its December meeting to announce any new move, they see a risk that additional easing measures could be flagged this Thursday and are betting ECB chief Mario Draghi will at least try to talk the currency down.
“I think the ECB on Thursday will push back against euro strength,” said Mark McCormick, currency strategist at Credit Agricole in New York. “We do not expect them to announce a new program, but perhaps lay the groundwork for an extension of quantitative easing.”
The dollar has also been supported by positive U.S. economic data last week, such as the higher-than-expected consumer inflation and a four-decade low for weekly jobless claims. The data gave hope the Federal Reserve may actually raise rates this year, underpinning the U.S. currency.
Commonwealth Foreign Exchange Chief Market Analyst Omer Esiner, however, said any sustained gain in the dollar “will come from a more defined increase in hopes for a December Fed rate hike.” That, he said, could come from a more hawkish Fed at next week’s Federal Open Market Committee meeting or a solid uptick in payrolls for October and November.
In late trading, the euro was 0.2 percent lower at $1.1322 EUR=, from a 10-day trough of $1.1307. Against sterling, it fell 0.7 percent to 73.22 pence after dropping to a four-week low of 73.04 pence EURGBP=D4.
Many banks were expecting the euro to fall to parity with the dollar by the end of the year as the ECB pumps 60 billion euros into the economy each month. But since dipping below $1.05 in March, it has gained 9 percent, adding to deflationary pressures in the euro zone.
The dollar index, meanwhile, on Monday rose 0.3 percent to 94.952 =USD.
After this week’s ECB meeting, the focus will turn to the Fed, which holds its policy meeting next week. Interest rate futures traders are banking on the Fed raising rates in March next year, with a 52 percent chance, according to the CME Group FedWatch on Monday.
San Francisco Fed President John Williams, a voting member of the FOMC, said on Monday the U.S. economy has good momentum, and despite strong headwinds from overseas that are holding down inflation, the Fed should start raising rates in the “near future.”
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Jemima Kelly in London; Editing by Dan Grebler