Euro gains ahead of ECB decision on bond buying

© Reuters. FILE PHOTO: Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

By Tommy Wilkes

LONDON (Reuters) - The euro edged higher on Thursday before an expected reduction in the pace of the European Central Bank's bond buying, while the dollar held on to recent gains as concerns about the global economy sent traders into currencies deemed safer.

The euro rose 0.2% to $1.1836 following a three-day retreat from Friday's two-month high of $1.1909.

The dollar index weakened 0.2% to 92.551, after three consecutive days of rises.

The ECB is expected to announce a trimming of the pace of its asset purchases at its policy meeting on Thursday, taking a token step towards unwinding the emergency economic aid it has put in place during the pandemic.

Analysts polled by Reuters see bond buying under its pandemic emergency purchase programme (PEPP) falling to possibly as low as 60 billion euros ($71 billion) a month from the current 80 billion euros, before a further fall early next year and the scheme's end in March.

But the ECB is expected to signal copious support for years after PEPP expires.

"Markets aren't expecting too much of a hawkish ECB today, so the risks to long EUR/USD are pretty limited but it would be a negative surprise if PEPP is unchanged," Nomura analysts said.

Stocks fell on concerns about the global economy.

That cautious mood helped the safe-haven Swiss franc. The dollar dropped 0.3% to 0.9194 francs, while the euro weakened 0.2% to 1.0878 francs. On Wednesday the franc had hit a two-month low against the euro.

The yen was also stronger, with the dollar losing 0.2% to 130.05 yen .

Sterling bucked the trend of weakness versus the dollar with a 0.3% gain to $1.3816 after falls earlier in the week.

The Canadian dollar gained 0.1% to C$1.2686 per U.S. dollar, having fallen on Wednesday to its lowest since Aug. 23.

The Bank of Canada left its key interest rate at a record low 0.25% and maintained its current quantitative easing program on Wednesday.

The Chinese yuan gained 0.1% to 6.4525 per dollar in offshore trade, though price data showed a worsening environment for Chinese businesses.

China's factory gate inflation hit a 13-year high in August despite Beijing's attempts to cool them while consumer inflation slowed unexpectedly in a sign of soft consumption.

"USD/CNY is surprisingly nonchalant amid rising concerns over China's property debt cycle and disappointing growth data," said BofA strategist Claudio Piron.

However, Piron reckons that more monetary policy stimulus will push the onshore exchange rate to 6.55 yuan per dollar by the end of September and 6.6 by year-end as China's yields become less attractive relative to U.S. Treasury yields.

Emerging market mostly currencies fell as investors exited riskier assets.

($1 = 0.8459 euros)