Euro falls to three-week low as markets prepare for ECB caution

LONDON: The euro fell to a three-week low on Thursday before a European Central Bank meeting where policymakers may express caution about slowing economic growth.

The ECB is expected to reaffirm it plans to raise interest rates by the end of the year, but traders will focus on how explicitly the central bank acknowledges the slowdown.

The euro has lost around 1.6 percent of its value over the past two weeks as investors bet the ECB will keep monetary policy accommodative for an extended period.

The euro weakened further on Thursday after a survey showed French business activity fell unexpectedly this month. Germany, France and Italy, the euro zone's biggest economies, barely grew in the fourth quarter.

If the weaker-than-expected economic activity leads ECB President Mario Draghi to point to a potentially longer lasting slowdown, that could hurt the euro.

"We see a risk of modest dovish bias from Draghi today given the long stream of soft euro zone data and look for the euro to test $1.1310," said ING FX strategist Petr Krpata.

At 1200 GMT the euro was down 0.3 percent at $1.133 , its lowest since Jan 3.

The ECB holds its first meeting of the year as concerns are growing about global trade tensions and Brexit.

Sterling traded 0.4 percent lower at $1.3022, sliding off Monday's two-month highs as traders bet Britain would avoid a chaotic exit from the European Union.

Some analysts expect limited upside for sterling. Philip Wee, currency strategist at DBS, says most of sterling's gains are caused by the unwinding of short positions. He sees sterling capped in the range of $1.3170-1.3240.

Since Prime Minister Theresa May's agreement with the European Union was rejected by lawmakers last week, lawmakers have been trying to find to resolve the crisis, but no option has the majority support of parliament.

The dollar index, a gauge of its value versus six major peers, was up 0.3 percent at 96.406. Concerns over global growth, the U.S. government shutdown and the U.S.-Sino trade dispute continue to restrain the dollar.

The Aussie dollar was a big mover on Thursday, trading down 0.6 percent at $0.7104 after National Australia Bank said it would raise mortgage rates by 12 to 16 basis points. Earlier, solid jobs data helped the Aussie to rise.