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Euro Dips on Caution Before ECB Meeting

Wednesday, 6 Mar 2013 | 4:42 PM ET
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The euro fell against the dollar on Wednesday, a day before a European Central Bank policy-setting meeting, on concerns 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 afterward to hint at prospective 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 extended gains against the euro and yen Wednesday after a report showed U.S. private 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 an increase of 215,000 from the previously reported 192,000.

While the jobs data was important ahead of the U.S. non-farm payrolls report on Friday, the ECB remained the focus in the nearer term.

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"The focus is tomorrow's ECB meeting; where interest rates are expected to remain on hold at 0.75 percent, however there is wide debate about President Draghi's tone during the press conference," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "We expect the ECB to ultimately turn more dovish, but that it occurs in April not tomorrow."

The euro was last down 0.6 percent at $1.2973.

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

"Investors are cautious about the euro before the ECB meeting tomorrow. The euro is still a sell on rallies and any bounce above $1.3105 should be sold into," said Jeremy Stretch, head of currency strategy at CIBC World Markets In London.

Yen Dips

The dollar climbed 0.9 percent against the yen to 94.08 yen. The euro was up 0.3 percent on the day at 122.06 yen.

The Bank of Japan kicks off its two-day policy-setting meeting Thursday, but the central bank is expected to hold fire this week and the market's attention is moving to April 3-4, the first policy review under new Gov. Haruhiko Kuroda.

Kuroda is expected to be formally appointed as governor after confirmation by parliament and 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 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 late trading in New York, the Australian dollar traded down 0.2 percent at US$1.0234, hurt by the U.S. currency's broad strength.

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