FOREX-Euro weakens before German Ifo survey, EU elections add uncertainty

Reuters

* Liquidity thinning ahead of U.S., London holiday weekends

* Euro pinned down by expectations of ECB easing steps

* Dollar supported as upbeat U.S. data lifts U.S. Treasury yields

By Anirban Nag

LONDON, May 23 (Reuters) - The euro fell broadly on Friday, trading near a three-month low against the dollar, as investors sold the common currency on exceptions that a soft German business sentiment survey would pile pressure on the ECB to ease policy next month.

Concerns that European Union election results at the weekend could destabilise some euro zone governments at home also weighed on the single currency.

The Munich-based Ifo think tank's business climate index, is forecast to fall to 110.9 from 111.2 in April. The data is due at 0800 GMT

"Recent manufacturing PMI prints out of Germany seem to confirm that the risks ahead of the release may be on the downside," said Valentin Marinov, currency strategist at Citi.

"Potential data disappointments today could keep the German economic surprise indicator and the euro under pressure across the board."

The euro was down 0.1 percent at $1.3646, trading just above a three-month low of $1.36345 struck on Wednesday, and holding above its 200-day moving average of $1.36375. A disappointing Ifo survey could see euro drop below those levels.

An upside surprise will provide only fleeting support to the euro with most expecting the European Central Bank to ease policy next month to ward off the threat of deflation, traders said.

Investors are also cutting positions ahead of the bulk of the voting for the EU parliament elections. A strong showing by the fringe parties would highlight the anti-euro and anti-austerity sentiment in some countries like Italy and Greece that have recently regained market confidence.

In Italy, for example, a poor result for Prime Minister Matteo Renzi's party could weaken his drive for swift reforms that he promised when he took power in a party coup.

Most EU countries vote on Sunday, when any trend towards the political extremes may become clearer. Results, including the allotment of seats in the parliament, will be announced at around 2100 GMT on Sunday.

DOLLAR STEADY

The dollar steadied near one-week highs against the yen after promising U.S. housing and factory activity data nudged U.S. Treasury yields away from recent lows.

The dollar index, which tracks the greenback against a basket of rivals, nudged up to 80.263.

Against the yen, the dollar was flat at 101.70, not far from its Thursday high of 101.82 and well off a 3-1/2 month trough of 100.805 yen plumbed on Wednesday.

U.S. Treasury yields edged up on the data with the benchmark yield briefly hitting a 1-1/2 week high of 2.57 percent. In European trade, the 10-year yield stood at 2.5463 percent, marginally lower from U.S. close, but above recent lows of 2.47 percent struck on May 15.

"There's not a lot of top-tier data out, and it's also going to be a long weekend in London and the U.S., so I imagine liquidity will be thinning out," said Sue Trinh, currency strategist at RBC Capital Markets.

(Additional reporting by Lisa Twaronite; Editing by Toby Chopra)

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