FOREX-Euro set for biggest weekly drop in 3 weeks as yields fall

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee
LONDON, July 5 (Reuters) - The euro edged lower on Friday
and is on track for its biggest weekly drop in three weeks as a
slide in core government bond yields ramped up pressure for
fresh stimulus policies from global central banks.
Germany's 10-year Bund yield DE10YT=RR breached the
European Central Bank's deposit rate of -0.40%, a level analysts
say acts as a psychological barrier even though shorter-dated
German bond yields already trade well below it. GVD/EUR
But despite the relentless drop in yields, the single
currency has been relatively well supported at around $1.12, a
level it has traded above since early June and 1.5% above a 2019
low of $1.1055 hit in late May.
Analysts say the euro's surprising strength is due to
concerns that any stimulus from the European Central Bank after
years of negative policy rates and multiple rounds of bond
purchases may be dwarfed by likely big rate cuts from the Fed.
"Although I would by no means rule out the possibility that
the ECB may once again conjure up an expansionary surprise, in
the medium term, it may find it difficult to overcompensate for
the Fed's significant scope for interest rate cuts," Commerzbank
strategists said ii a note.
On Friday, the single currency EUR=EBS edged 0.1% lower at
$1.1273 and is on track for a weekly loss of 0.8% versus the
dollar, its biggest weekly loss since mid-June.
Expectations of big U.S. rate cuts will not be shaken by
jobs data due later, with economists polled by Reuters
predicting U.S. non-farm payrolls to have increased by 160,000
in June from 75,000 in May.
The dollar index .DXY against a basket of six major
currencies stood little changed at 96.823, having spent the
previous day in a tight range as U.S. financial markets were
closed for the Independence Day holiday.
The Australian dollar AUD=D4 was a shade weaker at $0.7016
after climbing to a two-month high of $0.7048 the previous day.
The Aussie has advanced 1.4% this week with expected rate
cuts from the Fed and the ECB helping shift some of the focus
away from the Reserve Bank of Australia's own easing bias.
The pound struggled near a two-week low of $1.2557 GBP=D4
plumbed on Wednesday.