Euro edges up on uncertainty before ECB meeting

Wed Nov 6, 2013 4:21am EST
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LONDON (Reuters) - The euro rose against the dollar on Wednesday as uncertainty over how the European Central Bank will react to a sharp drop in euro zone inflation left investors wary of pushing the currency any lower.

The euro has dropped sharply from levels above $1.38 before last week's data and traders said some investors were wary the ECB may choose not adopt a strongly dovish tone and were taking profit on the currency's fall.

The ECB meets on Thursday, with some seeing a risk that the central bank could announce an interest rate cut or at least lay the ground for such a move.

The euro was up 0.15 percent at $1.3498, above a low of $1.3442 hit on Monday and trendline chart support at $1.3454.

"Short-term it's hard to see the euro going far in any direction," said Carl Hammer, chief currency strategist at SEB in Stockholm. He expected the euro to stay within 1-2 cents either side of $1.35.

"An ECB rate cut would be negative for the euro because it would play into the hands of short-term speculators as the market is quite long of euros, but it would not really alter the long-term picture," he said, adding an interest rate cut would have limited effect because rates were already near zero.

Analysts at Barclays Capital said in a note they expected "a looser monetary stance to be adopted at the December meeting" and that the ECB would signal its intentions before that.

"We remain short euro via a put spread," they said.

Comments from U.S. Federal Reserve official John Williams, who said the central bank should wait for stronger evidence of growth momentum before trimming its bond-buying program, weighed on the dollar.   Continued...

People learn to differentiate between original (top) and counterfeit euro banknotes during a workshop in Salacgriva September 24, 2013. REUTERS/Ints Kalnins