FOREX-Euro subdued near two-week lows, wary of ECB

Reuters

* ECB's Draghi speech may weigh on euro

* Euro zone PMIs and German IFO a key focus

* Chinese yuan drops to 14-month low vs dollar (Recasts, adds quotes, details)

By Anirban Nag

LONDON, April 22 (Reuters) - The euro hovered near a two-week low against the dollar on Tuesday and fell against the yen, as expectations the ECB will try to halt any further strengthening kept investors away from the single currency.

European Central Bank President Mario Draghi is scheduled to give a keynote speech in Amsterdam on Thursday. He recently made clear the euro's strength is a possible trigger for the central bank to ease monetary policy.

The euro was flat at $1.3795 after having slipped to a two-week low of $1.3785, in low volumes as traders return from the long Easter weekend. It was down 0.1 percent at 141.40 yen and slipped against the pound to 82.10 pence.

Investors are also awaiting euro zone 'flash' PMI surveys on Wednesday while the German IFO institute's monthly reading of business sentiment in Europe's largest economy is due a day later.

Last week, the monthly German ZEW poll showed investor and analyst sentiment falling for the fourth month in a row in April due to the crisis in Ukraine, and another set of subdued economic data could add to pressure on the ECB to ease.

"Euro/dollar is likely to trade with a weaker bias this week given the German IFO and Draghi's speech coming up," said Yujiro Goto, currency analyst at Nomura.

"Any downside will be limited though, as investors will await the inflation data due next week."

Very weak inflation in the euro zone, due partly to the strong exchange rate, has raised pressure on the ECB to further loosen monetary policy to stimulate growth.

In the past few weeks Draghi has brought the currency into focus and warned that any further strengthening could lead the euro zone's central bank to use unconventional tools such as asset purchases.

The euro's subdued price action supported the dollar index , which was trading at 79.920 after touching the day's high of 79.988, its loftiest level since April 8.

The greenback was at 102.52 yen, down about 0.1 percent, after rising as high as 102.73 yen, its highest since April 8. The yen suffered a mild setback on Monday after data showed Japan's export growth slowed to its weakest in a year, adding pressure on policy makers to inject more stimulus.

WEAK CHINESE YUAN

China's weakening currency was a focus after the People's Bank of China set a lower midpoint of the band within which its currency is allowed to trade.

The offshore yuan hit a fresh 14-month low of 6.2335 to the dollar on worries over a slowing Chinese economy and following Beijing's clampdown on one-direction bets on the yuan's gains since February.

So far there has been limited spillover into G10 currencies from the weaker yuan, but any pick up in volatility could see investors prefer safe-haven and liquid currencies. The Chinese currency has lost around 2.8 percent against the dollar since the start of the year.

Meanwhile, the New Zealand dollar rose 0.2 percent to $0.8590 as investors gear up for the Reserve Bank of New Zealand to hike interest rates for a second time this year.

"We expect the one-page statement will strike a more cautious tone than previously, mainly due to the high exchange rate and soft inflation data," said Imre Speizer, strategist at Westpac Bank in Auckland.

(Editing by Catherine Evans)

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