FOREX-Dollar drops to one-week low as inflation fears fade; ECB in focus

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

(Updates prices, adds commentary and detail)
By Elizabeth Howcroft
LONDON, March 11 (Reuters) - The dollar index fell to its
lowest in a week on Thursday and there was a mild "risk on" tone
in currency markets, after U.S. CPI data calmed inflation fears,
while attention turned to the European Central Bank's policy
meeting.
Softer consumer prices data in the United States on
Wednesday helped to ease concerns about a possible spike in
inflation when economies re-open from the COVID-19 pandemic.
That helped lift world shares to their highest in over a
week, with the Dow Jones Industrial average marking a record
close, while U.S. Treasury yields eased from their recent spike.
"The market had probably got itself a little bit too
over-sensitive about rising runaway inflation - which there
isn't yet," said Kit Juckes, head of FX strategy at Societe
Generale.
The soft inflation data "gives us respite from risk aversion
and reverses some of the recent currency moves," he added.
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 -
although SocGen's Juckes said that, since the rise in yields is
led by Treasuries, it is unlikely to be influenced by the
ECB. 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 1215 GMT, the dollar was down around 0.3% at 91.581
against a basket of currencies =USD , its third consecutive day
of losses after retreating from a three month high of 92.506 on
Tuesday.
The euro was around 0.3% higher against the dollar, at
$1.19605 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, 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 touched its strongest in just over one
year against the euro, before easing to 10.082 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. The Japanese yen was down around 0.2% versus the dollar at
108.55 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 steadied at $56,086.94 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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