FOREX-Euro at 2-month low vs dollar as investors wait for ECB easing

* Investors wait to see how far ECB goes with easing stance
* Euro overnight implied volume spikes to highest in months
* Swiss franc hits another two-year high vs euro
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Updates prices, adds quotes, data)
By Olga Cotaga
LONDON, July 25 (Reuters) - The euro sank to a new two-month
low against the dollar on Thursday as investors waited for the
European Central Bank to signal another round of monetary
easing, including a possible rate cut and the resumption of bond
purchases.
The slide was exacerbated by a bigger-than-expected fall in
the German Ifo index of current business conditions to 99.4 in
July from 100.8 in June. A Reuters poll of economists had
expected a decline to 100.4. "I doubt that anything the ECB does or says provides much
comfort" for the beleaguered euro, said Kit Juckes, macro
strategist at Societe Generale.
Money markets are pricing in a 50% chance of a 10 basis
points interest rate cut by the ECB on Thursday, a smaller
probability than last week, but some expect that President Mario
Draghi will open the door for further cuts down the road or for
more quantitative easing.
Hedge funds kept short positions on the euro at $4.39
billion in the week to July 16, around levels seen early this
year, according to the Commodity Futures Trading Commission.
However, some analysts expect the central bank to be way
less dovish and only tweak its forward guidance by
re-introducing the easing bias.
"Our best guess is euro ends the day higher," said Elsa
Lignos, strategist at RBC Capital Markets, adding that RBC
analysts expect the ECB to wait until September to cut the key
benchmark rate.
A Deutsche Bank index showed investors have been ramping up
call options holdings in euro/dollar, pushing the amount of call
options to the highest since early 2018, which serves as
evidence that some market participants see the euro
strengthening.
"This is an ECB meeting where the market seems unprepared
for EUR/USD weakness," said George Saravelos, a forex strategist
at the German lender.
Those opposing views in the market were reflected in euro
overnight implied volatility jumping to 12.73, its highest since
December.
The euro EUR=EBS dropped earlier to $1.1122, the lowest
it's been since May 30, trading down 0.1% on the day at $1.1128.
It has shed more than 2% of its value so far this month. The ECB
announces its rate decision at 1145 GMT, followed by a news
conference at 1230 GMT.
The Swiss franc EURCHF=EBS , buoyed by expectations of
lower rates in the euro zone, rocketed to a new two-year high of
1.0963 against the common currency and was last at 1.0978. The
spike in the franc bolstered expectations that the Swiss could
intervene to weaken the currency to protect their export-reliant
economy.
Sebastien Galy, macro strategist at Nordea Asset Management,
said he expected the Swiss National Bank and Danish central
banks to cut rates in September and he saw "a decent chance that
the SNB already reacts post today's ECB meeting."
Elsewhere, expectations of lower interest rates sent the
Australian dollar AUD=D3 to a new two-week low of $0.6963.
The pound remained below $1.25 and not far from the 27-month
low it reached last week, last trading slightly lower at $1.2472
GBP=D3 as new Prime Minister Boris Johnson assembled his
largely Brexiteer cabinet. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Euro down almost 2.5% in past month https://tmsnrt.rs/2ybXRsu
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