* Euro dips before Trichet presser; still near 12-week high
* Hawkish ECB, dovish Bernanke could boost euro/dlr further
* Stg at 3-mth high vs dlr as strong data boost rate outlook
(Adds quote, ECB rate decision, updates prices)
By Jessica Mortimer
LONDON, Feb 3 (Reuters) - The euro fell against the dollar
on Thursday, with investors booking profits and as markets
awaited the European Central Bank's latest comments on inflation
after it kept interest rates on hold, as expected.
The euro could rebound if U.S. Federal Reserve Chairman Ben
Bernanke, who is due to speak at 1730 GMT, reaffirms the Fed's
focus on boosting growth, reinforcing expectations the ECB will
raise rates ahead of the Fed.
Analysts said an upward revision to a euro zone services PMI
and lower yields at a Spanish debt auction were positives for
the euro, but the focus on the ECB's monthly meeting meant the
currency barely reacted. [] []
Market players will be looking for further hints on when
euro zone rates might rise, given ECB President Jean-Claude
Trichet's recent warnings on the need to tackle inflationary
pressures. Accelerating inflation and funding problems for
peripheral banks are set to top the agenda at the meeting.
[].
Trichet's news conference is due to start at 1330 GMT.
"The future trajectory of the euro/dollar rests on Trichet's
shoulders," said Kathleen Brooks, research director at
Forex.com. "If he picks up where he left off back in January and
highlights the upward risks to inflation that would be euro
positive and we could see euro at $1.40 in the coming days."
She added that if, on the other hand, he argued the spike in
inflation and risks to growth were temporary, the euro could
come under pressure.
The single currency shed 0.4 percent on the day to trade at
$1.3753 <EUR=>, moving away from a 12-week high of $1.3862 hit
on Wednesday though still more than 7 percent above a four-month
trough of $1.2860 hit less than a month ago.
Traders said offers were lined up at $1.3830 with talk of an
options barrier at $1.3900. Ahead of $1.40, the euro faces
resistance around $1.3950, marking the 76.4 percent retracement
of its two-month decline to early January as well as its
200-week moving average.
The dollar index <.DXY> was up 0.2 percent at 77.329, not
far above a 12-week low of 76.881.
Stephan Maier, currency strategist at Unicredit, said
investors may be taking a more neutral position on the dollar
after its hefty losses earlier in the week, given the political
turmoil in Egypt and the risks of unrest spreading to other
Middle East countries.
RISK FACTORS
Some analysts said expectations of hawkish ECB rhetoric may
have built too much, leaving room for disappointment and posing
downside risks for the euro.
"The market is looking for confirmation of a more hawkish
Trichet, though the risk/reward is that there is the potential
for disappointment," said Lauren Rosborough, currency strategist
at Westpac.
She said further gains could leave the euro on track to test
$1.40, but falls due to a more dovish line than expected from
Trichet, or from safe-haven dollar buying due to concerns about
unrest in Egypt, could push it towards last week's low around
$1.3530.
Another risk factor for the euro was an EU summit due on
Friday. EU finance ministers agreed last week to take their time
over beefing up the euro zone's rescue fund, in a go-slow
approach championed by Germany that could test the patience of
investors. []
Euro/dollar implied volatility for one month <EUR1MO=>
inched up to 11.85 percent from around 11.45 percent on
Wednesday, but one options trader says there had been little
interest in topside protection.
Sterling hit a three-month high against the dollar <GBP=D4>
of $1.6279 after strong UK services PMI data bolstered the case
for higher interest rates. []
While interest rate differentials are seen playing a big
role, one currency pair that has seen a breakdown in correlation
with yields is the dollar/yen, which was up 0.13 percent at
81.67 yen <JPY=>.
(Additional reporting by Anirban Nag; Editing by Toby Chopra,
Susan Fenton, John Stonestreet)
