London: The euro inched down to a five-day low yesterday, as investors eyed a meeting of the European Central Bank the next day that they expect will see policy kept loose despite rising inflationary pressures.
Market players also had their eyes on US labour market data due later in the day that should offer clues on Friday's closely watched non-farm payrolls report, though analysts said that was likely to have less of an effect on the dollar thanusual.
That is because the greenback has already rallied almost 2.5 percent against a basket of major currencies over the past five weeks, hitting two-month highs, as investors have moved to price in around an 87 percent chance of a US interest rate hike this month, up from around a 30 percent chance. Hawkish comments from U Federal Reserve officials last week have left investors reckoning that a rate hike next week is essentially a done deal.
It inched up 0.1 percent against the basket on Wednesday to 101.93, and also gained as much as 0.2 percent to trade at $1.0547 versus the euro, the single currency's weakest since March 3.
In contrast to Fed expectations, uncertainty lingers over the ECB's policy meeting today..
A Reuters poll last week found economists expect the central bank to only signal a shift away from its ultra-easy monetary policy toward the end of this year or early next, but some expect President Mario Draghi to tweak some of his language in order to prepare the ground for a winding-back of the ECB's stimulus programme in the months and years to come.
"We’re expecting them to change their assessment around the risks – at the moment they have them to the downside, but we have an out-of-consensus call that they’re likely to say either that downside risks have diminished or become more balanced," said BNP Paribas currency strategist Sam Lynton-Brown.
He added that this scenario should see the euro trade a little more strongly, though less against the dollar than against other European currencies, as in the bank's view, the market was underpricing further Fed rate hikes this year. DZ Bank currency strategist Sonja Marten, in Frankfurt, said further Fed rate hikes - a hike this month would be the third in 18 months - would not necessarily drive a great deal more dollar strength.
