* Euro set for smallest week of gains in 10 months
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, April 20 (Reuters) - The euro settled above the $1.23 line on Friday and is poised for its smallest week of gains in 10 months as investors marked time before a European Central Bank meeting next week where policymakers might shed some clues on removing policy stimulus.
Long euro bets are the biggest consensus trade in the foreign exchange market, with net positions holding near a record high despite PMIs recording a sizeable drop in March and mixed inflation data.
"Euro bets are near a record and that might be vulnerable to a shakeout if we see the ECB signalling a cautious stance next week," said Marc Ostwald, a global strategist at ADM Investor Services International in London.
The European Central Bank meets next week and expectations have grown that policymakers may take another small step in exiting its ultra-easy monetary policy after dropping a long-standing pledge to increase its bond buying if needed at its last meeting in March.
But Nordea markets strategists believe such a step may be hasty given some signs of a softening in economic data and brewing concerns of an escalation in trade disputes.
The central bank still wants to emphasise patience, prudence and persistence," they said in a note. "Forward guidance will thus likely be left unchanged next week, while Draghi’s tone should be relatively dovish."
The single currency was trading broadly flat at $1.2334 and is poised to rise less than 0.1 this week, its smallest week of gains since June 2017.
Sterling took another leg down on Friday to $1.4041 having fallen nearly 1 percent in the New York session after Bank of England Governor Mark Carney said that a rate hike this year was "likely".
Expectations of a UK interest rate increase in May has shrunk to around 40 percent from 70 percent earlier this week after Carney's remarks.
The dollar held generally firm across the board helped by higher U.S. Treasury yields. Ten-year yields held at 2.91 percent.
The dollar firmed to 107.54 yen, up 0.2 percent on the day and edging near its seven-week high of 107.78 yen touched last week, after U.S. President Donald Trump apparently made no new fresh demands on trade at his meeting with Japanese Prime Minister Shinzo Abe earlier this week.
"I think the excessive nervousness about a trade war and other political risks has eased a tad. Still, with G20 finance minister meeting planned this weekend, market players are cautious," said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo. (Reporting by Saikat Chatterjee; Additional reporting by Hideyuki Sano in TOKYO; Editing by Jon Boyle)