Euro slides vs dollar as ECB seen signaling future easing

NEW YORK: The euro weakened against the dollar on Wednesday, a day before a European Central Bank monetary policy meeting, pressured by expectations the bank may flag future interest-rate cuts.

The ECB is widely expected to keep policy unchanged at its meeting on Thursday, though President Mario Draghi may use the news conference afterwards to hint at future policy easing. Projections for both growth and inflation in the euro zone are likely to be on the low side, giving the central bank room to cut rates in the coming months.

The dollar, meanwhile, extended gains against the euro and yen after a report showed US private-sector employers added 198,000 jobs in February, another sign of improvement in the labor market.

Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 170,000 jobs. January's private payrolls were revised up to show an increase of 215,000 from the previously reported 192,000..

But while the ADP jobs data was important ahead of the US non-farm payrolls report on Friday, investors remained focused on the ECB in the nearer term.

"The market has turned dovish on the ECB and that kept the euro constrained," said Vassili Serebriakov, currency strategist, at BNP Paribas in New York. "While most are expecting the ECB to keep rates steady, there are a few calls for a rate cut tomorrow including our bank."

The euro was last down 0.5 percent at $1.2993. It was the third time in four days that the euro has traded below the key $1.30 level. So far in 2013, the euro was down 1.6 percent.

Some US$3.6 billion in euros changed hands on the Reuters Dealing platform.

Political stalemate in Italy following inconclusive elections is also likely to keep the euro subdued.

The dollar has also been the most sought-after currency on Wednesday and has been for many weeks, said Samarjit Shankar, director of market strategy, at BNY Mellon in Boston, adding that euro zone investors have been steady buyers of the greenback.

"For market participants spooked by the euro's renewed travails, the greenback and Swedish krona have emerged as the safe-havens of choice, while sterling's allure has been severely dented," Shankar said.

The dollar index rose 0.5 percent to 82.471.

YEN DIPS

The dollar rose 0.7 percent against the yen to 93.93 yen . The euro was up 0.2 percent at 121.97 yen.

Some US$1.9 billion in yen changed hands, using Reuters Dealing.

The Bank of Japan also holds its two-day policy meeting this week. Investors are expecting no further action from the BoJ and are instead looking at the April 3-4 meeting, the first policy review under new governor Haruhiko Kuroda.

Kuroda is expected to be formally appointed as governor after confirmation by parliament. He is an advocate of aggressive monetary easing.

Traders said one increasingly popular strategy is to bet on dollar/yen moving between 90-91 and 95 yen until April 4, using option strategies.

The growth-linked and higher-yielding Australian dollar earlier got a boost from data showing Australia's economy expanded by 0.6 percent in the December quarter, and benefited also from improved risk appetite as the Dow Jones industrial average hit new heights.

But by early afternoon trading in New York, the Australian dollar traded down 0.2 percent at US$1.0242, hurt by the US currency's broad strength.