* ECB seen keeping policy expansive despite rising inflation
* Wait-and-see mood takes hold before US jobs data
* Likelihood of March Fed rate hike seen mostly priced in
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, March 8 The euro inched down to a
five-day low on Wednesday, as investors eyed a meeting of the
European Central Bank the next day that they expect will see
policy kept loose despite rising inflationary pressures.
Market players also had their eyes on U.S. labour market
data due later in the day that should offer clues on Friday's
closely watched non-farm payrolls report, though analysts said
that was likely to have less of an effect on the dollar than
That is because the greenback has already rallied almost 2.5
percent against a basket of major currencies over the
past five weeks, hitting two-month highs, as investors have
moved to price in around an 87 percent chance of a U.S. interest
rate hike this month, up from around a 30 percent chance.
Hawkish comments from U.S. Federal Reserve officials last
week have left investors reckoning that a rate hike next week is
essentially a done deal.
It inched up 0.1 percent against the basket on Wednesday to
101.93, and also gained as much as 0.2 percent to trade at
$1.0547 versus the euro, the single currency's weakest
since March 3.
In contrast to Fed expectations, uncertainty lingers over
the ECB's policy meeting on Thursday.
A Reuters poll last week found economists expect the central
bank to only signal a shift away from its ultra-easy monetary
policy toward the end of this year or early next, but some
expect President Mario Draghi to tweak some of his language in
order to prepare the ground for a winding-back of the ECB's
stimulus programme in the months and years to come.
"We’re expecting them to change their assessment around the
risks – at the moment they have them to the downside, but we
have an out-of-consensus call that they’re likely to say either
that downside risks have diminished or become more balanced,"
said BNP Paribas currency strategist Sam Lynton-Brown
He added that this scenario should see the euro trade a
little more strongly, though less against the dollar than
against other European currencies, as in the bank's view, the
market was underpricing further Fed rate hikes this year.
DZ Bank currency strategist Sonja Marten, in Frankfurt, said
further Fed rate hikes - a hike this month would be the third in
18 months - would not necessarily drive a great deal more dollar
"When you have rate hikes, the tendency is that...as you
move along in the cycle, the effect of additional rate hikes
lessens dramatically," she said.
"Unless the market were to price in a significantly more
upbeat picture for the U.S., which would imply the Fed might
move much more dynamically than is currently priced in, whether
they hike two time or three times this year isn’t going to
matter for the dollar."
The Swiss franc was little changed at 1.0135 per
dollar after retreating to 1.0170 overnight, its weakest since
Jan. 11, hurt by a rise in the Swiss National Bank's foreign
exchange reserves, and statements from SNB Chairman Thomas
Jordan that the franc was "significantly over-valued."
Sterling slipped half a percent to a seven-week low
ahead of a budget statement by the UK finance minister.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by