FOREX-Dollar drops to one-week low; focus on European Central Bank meeting

* Dollar index at one-week low
* ECB expected to signal faster money printing
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

LONDON, March 11 (Reuters) - The dollar index fell to its
lowest in a week early in Thursday's European session and there
was a mild "risk on" tone in currency markets, as attention
turned to the European Central Bank's policy meeting.
Softer consumer prices data in the United States on
Wednesday helped to ease fears about a possible spike in
inflation when economies re-open from the COVID-19 pandemic.
U.S. Treasury yields declined from their recent spike.
At the European Central Bank meeting, policymakers are
expected to send a message that they will prevent bond yields
from rising further and harming the bloc's economic outlook.
The bank is expected to signal faster money printing but
stop short of adding to its already aggressive policy package.
The ECB's policy decision will be at 1245 GMT, followed by a
news conference at 1330 GMT.
Analysts at ING wrote in a note to clients that they do not
expect the euro to be the focus of discussion, since it has
fallen since the previous meeting. The euro-dollar pair is being
more driven by dollar-related factors such as Treasury yields,
ING said.
At 0834 GMT, the dollar was down around 0.2% at 91.606
against a basket of currencies =USD , having dropped from the
three month high of 92.506 it reached on Tuesday.
The euro was around 0.3% higher against the dollar, at
$1.19585 EUR=EBS . It has fallen 2.1% so far this year.
"If the central bankers signal that they would not only be
willing to exhaust their current asset purchasing programme but
to even extend it in reaction to a further rise in yields, this
might put a dampener on possible rate expectations thus putting
pressure on the euro," wrote Commerzbank strategist Thu Lan
Nguyen in a note to clients.
"However, I would not expect a significant impact as the
market is only expecting rate hikes in the euro zone to occur in
the very distant future compared with the U.S. anyway," she
said.
Elsewhere, currency markets showed signs of mildly increased
risk appetite.
The Australian and New Zealand dollars were up for the third
session in a row, both at their highest in a week versus the
U.S. dollar, helped by rising commodity prices AUD=D3
NZD=D3 . The Norwegian crown was at its strongest in just over one
year against the euro, with the pair changing hands at 10.032 at
0818 GMT EURNOK=D3 .
Focus later in the day will be on an auction of 30-year U.S.
Treasuries. An auction of 10-year notes on Wednesday drew
sufficient demand, helping to allay concerns about investors'
ability to absorb an increase in debt needed to finance the
response to the pandemic. "Considering the centrality of Treasury yields in the
current market narrative, the auction should be a key driver of
risk appetite: another contained reaction in yields (even in the
event of a somewhat weak auction) may leave more room for risk
stabilization and continue to benefit pro-cyclical currencies
while keeping USD pressured," said ING.
The safe-haven Swiss franc dropped against both dollar and
euro CHF-EBS EURCHF=EBS .
The Japanese yen was down around 0.2% versus the dollar at
108.605 JPY=EBS .
Also aiding the improved risk appetite was U.S. President
Joe Biden's $1.9 trillion COVID-19 relief bill winning final
approval in the House of Representatives on Wednesday.
Elsewhere, bitcoin was a touch lower, down around 2.2% on
the day at $54,640 BTC=BTSP . The cryptocurrency has recovered
some recent losses but not surpassed its all-time high of
$58,354.14 which was reached on Feb. 21.

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