FOREX-Euro holds firm as markets bet on ECB stimulus boost

* Euro at highest since mid-March vs dollar
* ECB widely expected to expand emergency bond buying
* Aussie off 5-month high, shrugs off local retail sales
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, June 4 (Reuters) - The euro held near multi-month
highs against its peers on Thursday, on expectations the
European Central Bank will expand its bond buying programme
later in the day to shore up the coronavirus-stricken economy.
The euro's strength helped to push the dollar's index
against a basket of key currencies to the lowest in nearly three
months while optimism over the reopening of economies around the
world also reduced demand for the dollar.
The euro stood at $1.1220 EUR= , down slightly on the day
after having risen to $1.1258 on Wednesday, its highest levels
since mid-March and the seven straight session of gains.
Against the Japanese yen, the common currency rose to a
4-1/2-month high of 122.625 overnight and last stood at 122.21
yen EURJPY= .
It also fetched 1.0793 franc EURCHF= on the safe-haven
Swiss currency, having risen to as high as 1.0820, its strongest
since Jan. 14.
The European Central Bank is widely expected to increase the
size of its 750 billion euro ($669 billion) Pandemic Emergency
Purchase Programme (PEPP) as early as Thursday. The ECB delivers its policy decision at 1145 GMT and ECB
President Christine Lagarde holds a news conference at 1230 GMT.
The currency has been bolstered by hopes for European
Union-wide fiscal support measures after Germany last month
threw its weight behind the idea of a European Union recovery
fund, breaking away from its long-held tradition to resist moves
towards fiscal integration in the currency bloc. "I suspect the market has already priced in an increase of
about 500 billion in the PEPP and in the near term, there is
risk of a correction," said Masafumi Yamamoto, chief currency
strategist at Mizuho Securities.
"The market could react positively if the ECB expands the
target of its bond purchase or scraps its limit on each country.
But in terms of the total size, it is hard to expect a positive
surprise now," he said.
The dollar index =USD stood at 97.450, having fallen about
1% so far this week as broad improvement in risk sentiment,
underpinned by reopening of economies globally, reduced the
allure for the greenback.
On Wednesday, data showed that U.S. private payrolls fell
less than expected in May, suggesting layoffs were abating as
businesses reopen, though the overall economy's recovery from
the COVID-19 pandemic will be slow.
Optimism on economic re-openings and recovery continued to
dominate the market despite social unrest in the United States
and brewing diplomatic tensions between Washington and Beijing.
The safe-haven yen also weakened during much of this period,
and was last trading at 108.96 yen JPY= , near a two-month low
of 108.98 hit in U.S. trade previously.
Sterling was changing hands at $1.2576 GBP=D4 , near its
strongest in more than a month, helped by signs that Britain
might be willing to compromise on sticking points in Brexit
negotiations with the European Union.
Britain is expected to indicate flexibility over fisheries
and trade rules if the European Union agrees to lessen its
demands regarding regulatory alignment and fishing access, the
Times newspaper reported on Tuesday as a new round of talks
kicks off. The UK has until July 1 to ask for an extension to the
current transition period, which ends in December.
The Australian dollar slipped slightly to $0.6895 AUD=D4 ,
consolidating after having hit a five-month high of $0.6982 on
Wednesday.
The market took the record plunge in the country's retail
sales in its stride. "The market's sentiment is still risk-on. But I have the
impression that, in some currencies, such as the Australian
dollar, the rally is a bit over-heating," said Hiroshi
Morimatsu, director of forex at MUFG Bank.

(Editing by Shri Navaratnam and Jacqueline Wong)