Euro gains ahead of ECB meeting; dollar languishes

London

THE euro edged higher before a European Central Bank (ECB) meeting later on Thursday, where any positive comments about the economic outlook or hints of tapering bond purchases are expected to send the common currency racing higher.

The ECB is not expected to change policy when it meets later on Thursday, but analysts say this meeting will set the stage for June, when policymakers have to decide whether to slow its bond buying. The ECB's decision is due at 1145 GMT, which will be followed by a press conference at 1230 GMT.

Dutch central banker Klaas Knot has already said tapering is possible, and the euro could resume its rise against the dollar on any signs a reduction in bond purchases is gaining more support within the ECB, analysts said.

"The ECB has already increased the pace of bond purchases at one of the latest meetings, so changes to the current monetary policy look very unlikely at the upcoming meeting," said Vladimir Potapov, CEO of VTB Capital Investment.

The euro was quoted at US$1.2033, up 0.1 per cent on the day and not far from its strongest since March 3. The common currency has gained as much as 3 per cent against the dollar since the start of April.

"We expect the European Central Bank meeting today to have a limited impact on the euro," said strategists at ING in a research note.

The euro's gains weighed on the dollar, which eased to 108.03 yen, close to a seven-week low.

The greenback traded near multi-week lows against most major currencies as fading gains in US Treasury yields reduced its interest rate advantage.

Sentiment toward the dollar has weakened as last month's spike in Treasury yields reverses course, but some analysts say the outlook over the longer term remains positive due to a strong US economy and an improved coronavirus vaccination programme.

The British pound bought US$1.3914, down 0.1 per cent on the day.

The onshore yuan rose to 6.4890 per dollar to reach its strongest level since March 12.

The Canadian dollar, which surged to a six-week high on April 21, was last quoted at 1.2498 against its US counterpart, flat on the day.

The Aussie fetched US$0.7745 and the Kiwi changed hands at US$0.7184. REUTERS