FOREX-Euro stuck near two-month low as markets brace for dovish ECB

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Worsening data bolsters case for dovish ECB
* Sterling stabilises after Johnson takes office
* Dollar supported before Fed meeting next week

By Stanley White
TOKYO, July 25 (Reuters) - The euro was mired near a
two-month low on Thursday ahead of a European Central Bank
meeting that could signal monetary easing as growth in the
currency zone falters.
Sentiment towards the single currency took a blow after data
showed Germany's manufacturing sector contracted at the fastest
pace in seven years while French business growth unexpectedly
slowed, sending European bond yields lower.
In Asia, emerging currencies edged lower after North Korea
fired two short-range missiles into the sea early on Thursday,
diminishing appetite for riskier assets in the region.
However, investor focus in Asia remains predominantly on
global central bank and political developments, particularly in
Europe and the United States.
Sterling held onto gains it made since Boris Johnson took
office as Britain's new prime minister on Wednesday, but
investors are still wary of a no-deal Brexit in which Britain
would leave the European Union without a trade agreement.
The dollar found support after U.S. Treasury Secretary
Steven Mnuchin said he would not advocate for a weaker currency.
Investor focus shifts to the ECB's meeting later on Thursday
and a widely expected interest rate cut from the U.S. Federal
Reserve next week, which are both expected to dictate the tempo
for currencies and bond yields in coming months.
"I see more downside for the euro, because there are no good
signs coming from Europe at the moment," said Tsutomu Soma,
general manager of fixed income business solutions at SBI
Securities in Tokyo.
"Don't expect European bond yields to rise anytime soon. The
U.S. is headed toward lower rates, which used to be a supportive
factor for the euro, but that is no longer the case."
The common currency EUR=EBS traded at $1.11415 after
touching $1.11270, its lowest since May 31.
The euro has fallen 2.0% so far this month on increased
speculation the ECB would join other central banks in easing
policy as a trade war between the United States and China
weakens the global economy.
Traders see a 48% probability that European policymakers
will lower a key deposit rate by 10 basis points to minus 0.50%,
according to interest rate swaps. ECBWATCH
If the ECB keeps policy on hold Thursday, economists say
President Mario Draghi could flag a rate cut for the next policy
meeting in September. The Ifo institute will release its closely-watched index of
German business sentiment later on Thursday, which will provide
further clues about the health of Europe's largest economy.
Sterling GBP=D3 was a shade higher at $1.2484, staging a
modest recovery from a 27-month low of $1.2382 reached last
week.
Johnson promised in his first speech as prime minister to
lead Britain out of the EU on Oct. 31 with "no ifs or buts" and
warned there would be a no-deal Brexit if the bloc refused to
negotiate.
The dollar traded at 108.200 yen JPY= , near a one-week
high of 108.290 yen.
Mnuchin told CNBC in an interview the United States benefits
from the greenback's standing as the world's reserve currency.
The dollar was also supported by a White House statement
that top U.S. negotiators will meet their Chinese counterparts
in Shanghai starting July 30.
The world's two-biggest economies are seeking a resolution
to their bruising trade war. The dollar index .DXY , which measures the greenback
against six major currencies, stood at 97.701 after touching an
eight-week high of 97.810 on Wednesday.