FOREX-Euro down on ECB speculation; data lifts dollar

Reuters

* Euro hits one-month low vs pound, near four-week low vsyen

* Focus on ECB meeting on Thursday, risk of rate cut

* Sterling gains on strong UK services data

By Wanfeng Zhou

NEW YORK, Nov 5 (Reuters) - The euro slid against the dollaron Tuesday, hurt by speculation the European Central Bank maysignal easier monetary policy or even cut interest rates at itspolicy meeting this week.

Adding to the dollar's strength was data showing a pick-upin U.S. services-sector activity, which could strengthen thecase for the Federal Reserve to start scaling back stimulus.

ECB policymakers meet on Thursday. Falling inflation andforecasts that the euro zone economy will expand slightly moreslowly next year than previously expected have added to callsfor an interest rate cut, possibly as soon as this meeting.

"In the next week or two, we could see continued euroweakness, but that's all going to depend on the ECB," said JohnDoyle, currency strategist at Tempus Inc in Washington.

The euro fell 0.3 percent to $1.3474, having hit asession low of $1.3448, according to Reuters data, and edgingback toward the seven-week trough of $1.3441 set on Monday.

Asmara Jamaleh, currency strategist at Intesa Sanpaolo inMilan, said while she does not expect the ECB to take any actionon Thursday, the euro is likely to stay weak due to divergenteuro zone and U.S. economic outlooks.

But she noted that the euro's recent fall has been "verylarge" since the release of inflation data. Further losses wouldbe limited as long as the euro remained above chart supportaround $1.3425. Over the next few months it could drop below$1.30, she said.

Technicals also point to increasing bearish momentum for theeuro, and continued unwinding of long positions could acceleratethe currency's decline, analysts said. The next downside targetis around $1.3294, the 50 percent retracement of the euro'srally from July to October.

The euro was last down 0.8 percent againststerling to 83.96 pence, having fallen to its lowest since earlyOctober after a survey showed UK services sector activityexpanded at its fastest pace in 16 years last month,highlighting the differing outlooks for the UK and euro zoneeconomies.

Against the dollar, sterling rose 0.5 percent to $1.6042.

"Investors became increasingly enthusiastic about theprospects for UK growth into next year," said Boris Schlossberg,managing director of FX Strategy at BK Asset Management in NewYork. "The unit may try to make a run at the $1.6100 level asthe day progresses."

Against the yen, the euro fell 0.3 percent to 132.80 yen, having hit its lowest since Oct. 10 earlier in theday.

The dollar index, which measures the dollar's value againsta basket of currencies, rose 0.2 percent to 80.700, belowa seven-week high of 80.930 reached on Monday.

Against the yen, the dollar was little changed at 98.56 yen, paring losses after the Institute for Supply Managementsaid its services index rose a point to 55.4 last month, againstexpectations for a slip to 54.0.

"The report overall suggested a fairly solid U.S. economicbackbone, bolstering the case for the Fed to taper policy at oneof the next few meetings," said Joe Manimbo, senior marketanalyst at Western Union Business Solutions in Washington, D.C.

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