FOREX-Euro sinks to 2-month low vs dollar as investors unsure about ECB policy

* Investors' views mixed on what ECB delivers
* Euro overnight implied volume spikes to highest in months
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

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 confirm that borrowing costs will get
cheaper and that it will start buying bonds again.
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.
However, some analysts expect the central bank to be way
less dovish and only tweak its forward guidance by
re-introducing the easing bias.
"We've seen consistent demand for downside euro in options,
and euro is underperforming in spot...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.
These opposing views in the market are reflected in euro
overnight implied volatility jumping to 12.73, its highest since
December.
The euro EUR=EBS dropped at $1.1126. 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
1.0965 against the common currency and was trading at 1.0969.
Elsewhere, expectations of lower interest rates sent the
Australian dollar AUD=D3 to a new two-week low of $0.6964.
The pound remained below $1.25 and not far from the 27-month
low it reached last week, last trading flat at $1.2475 and at
89.26 pence against the euro GBP=D3 EURGBP=D3 .
Traders will be looking for the German Ifo current
conditions survey, due 0800 GMT. Economists polled by Reuters
are forecasting a small decline to 100.4 in July from 110.8 in
June.