FOREX-Euro drifts ahead of ECB, no-deal nerves knock sterling

* Euro inches down ahead of Thursday's ECB meeting
* Pound slips as no-deal Brexit talk grows louder
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Marc Jones
LONDON, Sept 8 (Reuters) - The euro-dollar exchange rate
drifted lower as traders bid their time on Tuesday ahead of the
European Central Bank's post-summer meeting later in the week,
while renewed warnings from London of a no-deal Brexit kept
sterling on the slide.
The euro bobbed around $1.18 EUR=EBS but the pound was at
two-week low of $1.3125 GBP=D4 and the yuan back-pedalled too
CNY=CFXS after U.S. President Donald Trump warned about
"decoupling" the U.S. and Chinese economies.
Britain went into Tuesday's fresh round of Brexit trade
talks with a warning to the European Union that it was ramping
up preparations to leave without an agreement at the end of the
year. GBP/
"Clearly the headlines about the UK government drawing up
some withdrawal agreement overrides is not going to sit well
with officials in Brussels if they are true," said Lombard
Odier's head of FX strategy Vasileios Gkionakis.
"We are still looking for a skinny, skeleton, basic deal
whatever you want to call it. But as time draws on, the risk of
a no deal Brexit rises."
Moves in the Asian day had been modest, with the dollar back
under gentle pressure as risk appetite appeared to return to
equity markets. MKTS/GLOB
The Australian dollar AUD=D3 was up at $0.7276 and the New
Zealand dollar NZD=D3 was little changed at $0.6685, having
hit lows overnight following a Sunday statement from the central
bank which again raised the prospect of negative rates. AUD/
The main focus this week is on the European Central Bank's
policy decision on Thursday.
Most analysts don't expect a change in the central bank's
policy stance but are looking to the message on its inflation
forecasts and whether it seems concerned by the euro's strength.
The meeting comes after the single currency marked a
two-year high just above $1.20 at the beginning of the month,
until comments on how the exchange rate "does matter" from ECB
chief economist Philip Lane knocked it lower.
Lombard Odier's Gkionakis said some more verbal intervention
from ECB head Christine Lagarde was probably more likely than
formal concerns at this point, a view shared by other analysts.
"The ECB could raise more concerns over a further
appreciation in the euro and make some downward revisions to its
inflation projections," said Commonwealth Bank of Australia
currency analyst Kim Mundy, which would flag easier policy.
Both said the euro would take a hit if the ECB did take a
stronger stance.
Elsewhere, the dollar traded firmly against the Japanese yen
amid talk of a snap election - something that Yoshihide Suga,
frontrunner to succeed Shinzo Abe in next week's leadership
ballot - signalled in a newspaper interview. Analysts say many currency market participants no longer
consider the leadership race as a catalyst, as the next leader
is likely to follow Abe's policy path.
"Around eight years ago (when Abe took over), the yen was
stronger at around 70 per dollar. But with the current
dollar/yen level, there's nothing much the successor can do
currency-wise," said Daisuke Karakama, chief market strategist
at Mizuho Bank.
"The stronger local equity market should be more of a
concern instead," he said.
The yen JPY=EBS last changed hands at 106.29 per dollar.
Some traders also sold sterling against the yen GBPJPY= ,
last traded at 139.63, hovering near a two-week low of 139.58 it
hit in the previous session.
Japan's economy shrank an annualised 28.1% in April-June,
worse than the initial estimate of a 27.8% contraction, revised
data from the Cabinet Office showed on Tuesday. Final European GDP figures are also due later in the day.