* FX volatility index falls to Feb 2020 levels
* Euro lower ahead of ECB meeting on Thursday
* Traders wait for policy cues before making new bets
* Sterling dips after recent run higher
* Graphic: World FX rates tmsnrt.rs/2RBWI5E (Recasts on volatility, adds details, latest prices)
LONDON, June 8 (Reuters) - Currency market volatility on Tuesday fell to its lowest since before the COVID-19 pandemic roiled markets in March 2020, as investors sat on the sidelines waiting for clearer signals on the inflation trajectory and how central banks will respond.
With an impending European Central Bank meeting on Thursday and U.S. inflation data due the same day, and a U.S. Federal Reserve meeting next week, currencies appear to be treading water.
Range-bound currency markets mean a fall in volatility. The Deutsche Bank Currency Volatility Index hit its lowest since February last year.
Marshall Gittler, head of investment research at BDSwiss, called the FX market “nearly frozen” with trade-weighted indices on Monday stuck within 0.1% ranges.
While volatility levels are nowhere close to record lows, “the doldrums are widespread – all major pairs are below their average vol,” he added.
The U.S. dollar found a bit of support on Tuesday as investors prepared for the inflation data following weaker-than-expected jobs data, which has eased concerns about an early tapering of the Federal Reserve’s monetary stimulus.
The euro fell marginally, weakened by the dollar’s strength and data showing German industrial production numbers declined in April.
Currency markets were generally in a holding pattern ahead of Thursday, when the European Central Bank meets and U.S. inflation numbers are published.
“As investors continue to process G7 corporate tax proposals, low volatility remains the name of the game in FX into this week’s ‘super Thursday’ (US CPI and ECB meeting),” ING analysts said in a note.
The dollar index rose 0.1% to 90.105, while against the euro, the greenback was 0.1% higher at $1.2174.
The British pound fell 0.2% to $1.4147 and the Australian dollar eased 0.2% to $0.7742, with both stuck in ranges seen over the past couple of months.
With recent trading channels tight, implied volatilities on both currencies have dropped to their lowest levels since early 2020, before markets were pummelled by the COVID-19 pandemic.
The Japanese yen dropped as the dollar rose, fetching 109.48 yen per dollar, down 0.2% on the day.
Cryptocurrencies dropped but trading was generally calm. Bitcoin earlier eased to a three-week low of $32,418, while ether fell 4% to a one-week low of $2,431.93.
Editing by Robert Birsel and Bernadette Baum