CORRECTED-FOREX-Dollar strengthens; euro falls ahead of ECB meeting

(Corrects euro price in sixth paragraph)
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

LONDON, June 4 (Reuters) - The dollar strengthened on
Thursday, reversing its weakening trend of the past seven days,
while the euro slipped ahead of a European Central Bank meeting
at which policymakers could step up stimulus measures.
The ECB is expected to increase the size of its 750 billion
euro ($840 billion) Pandemic Emergency Purchase Programme to
support Europe's weakest economies - although some investors
think this will happen at July's meeting rather than today.
"For EUR, the direct implications of increasing the size of
the PEPP are limited, but combined with the developing recovery
fund, the implied improvement in the responsiveness of policy is
positive," said Adam Cole, chief currency strategist at RBC
Capital Markets.
But Commerzbank's FX and EM analyst Thu Lan Nguyen said that
any further gains for the euro could be limited by a large
amount of positive economic news already being priced in by
investors.
"The most important question remains and that is whether the
crisis will leave permanent damage and if so how pronounced this
is going to be," she said.
The euro was at $1.1202 at 0720 GMT, down 0.3% and
retreating from three-month highs EUR=EBS . It has been
supported recently by proposals for a 750 billion euro EU-wide
recovery fund, made up of grants and loans, to share the cost of
the coronavirus on hard-hit countries such as Italy and Spain.
One argument against the ECB announcing more policy easing
on Thursday is the slow progress in the European Union's effort
to finalise its recovery fund proposal. The ECB could hold out
to keep up pressure on EU political leaders. The central bank delivers its policy decision at 1145 GMT
and ECB President Christine Lagarde holds a news conference at
1230 GMT.
The dollar rose around 0.3% against a basket of currencies,
having weakened in the last week as global markets grew more
optimistic about an economic recovery =USD . The U.S. currency
began strengthening in overnight trading but picked up more
sharply from around 0600 GMT.
The safe-haven Japanese yen fell to new two-month lows and
was down around 0.1% at 109.06 at 0710 GMT, having weakened to
as much as 109.150 overnight before steadying in early London
trading JPY=EBS .
Riskier currencies retreated from recent highs. The
Australian dollar fell as much as 0.5% against the U.S. dollar,
hitting a low of $0.6884 AUD=D3 .
Australian retail sales suffered a historic plunge in April
while the trade surplus narrowed as the coronavirus battered the
economy, leaving the nation facing its worst ever contraction in
the current quarter. The Norwegian crown, edged down from recent three-month
highs against the dollar and euro NOK= EURNOK=D3 .
Goldman Sachs analysts recommended in a note to clients that
investors go short on USD/NOK.
"The currency offers attractive exposure to a number of
cyclical factors that seem likely to turn from headwinds to
tailwinds, such as higher oil prices and improving growth in
Europe," they wrote.
($1 = 0.8925 euros)