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FOREX-Euro-dollar steadies as rally pauses ahead of ECB meeting

* Traders awaits Thursday’s ECB meeting

* Euro steadies after backing off 2-1/2 year high

* Sterling drops on threat to EU divorce deal

* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E

LONDON, Sept 7 (Reuters) - The euro-dollar exchange rate steadied above $1.18 on Monday as traders took stock of the latest U.S. jobs data and prepared for the European Central Bank meeting on Thursday to see if policymakers will introduce yet more stimulus.

The dollar has tumbled to more than two-year lows against the euro at the start of September as investors fretted about the strength of a U.S. economic recovery and bet U.S. interest rates would stay low for longer just as policymakers had introduced a significant recovery fund in Europe.

But the greenback has steadied in recent sessions, especially after the euro’s brief flirtation with the $1.20 level was followed by selling of the single currency.

U.S. jobs data on Friday has helped the dollar. The U.S. Labour Department report showed that U.S. employment growth slowed and permanent job losses increased as government funding started running out. Still, the jobless rate fell to 8.4% from 10.2% in July.

“The U.S. dollar has found a firmer footing lately, though the bounce remains tentative,” Alvin Tan, an FX Strategist at RBC Capital Markets, said.

“Jawboning by ECB officials worried about the euro’s rise has helped calm fevered USD bearishness.”

Investors are not expecting any policy changes at Thursday’s ECB meeting but will be listening closely for anything said about the euro after a blistering rally that has likely unnerved some policymakers.

In a quiet start to the trading day on Monday, the euro last stood at $1.1841, unchanged on the day, while the dollar index was little changed at 92.875.

U.S. financial markets are closed for the Labour Day holiday so trading volumes are likely to be thinner than usual.

Analysts said a sharp decline in U.S. stocks last week also prompted traders to adjust their positions on the dollar.

“When stocks become unstable, the yen appreciates. What happens as a result is that a stronger dollar and yen bump into each other, meaning other currencies could weaken,” said Minori Uchida, chief currency analyst at MUFG Bank.

Elsewhere, the big mover was sterling, which slid 0.5% after Britain reportedly threatened to override its European Union divorce deal. The currency weakened 0.5% $1.3218 while against the euro it touched a one-week low of 89.605 pence .

Against the yen, the dollar traded at 106.19, down marginally on the day.

The Chinese offshore yuan was little changed and last fetched 6.8334 per dollar after customs data on Monday indicated that the country’s exports marked the strongest gain since March 2019 while imports slumped. (Additional reporting by Eimi Yamamitsu in Tokyo, editing by Ed Osmond)

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