FOREX-Euro steady in early Asian trade

Thu Dec 6, 2012 5:48am IST

* Euro nurses loss after drop from 7-week peak vs dollar

* Yen undermined in longer term by election expectations

By Lisa Twaronite

TOKYO, Dec 6 (Reuters) - The euro held its ground in early Asian trade on Thursday after slipping from a seven-week high against the dollar in the previous session, as investors awaited a European Central Bank policy meeting.

The ECB is widely expected to keep rates on hold at 0.75 percent at its policy meeting on Thursday. Investors will be looking for clues to whether ECB President Mario Draghi will show a greater willingness to cut borrowing costs in the future.

The yen was also slightly higher, but was undermined by expectations of pressure on the Bank of Japan to take further easing steps following the election on Dec. 16. The latest Japanese polls on Thursday showed Shinzo Abe's opposition Liberal Democratic Party on track to secure a majority.

"Politically, LDP leader Abe has softened his aggressive stance on monetary policy. However, we remain bearish on JPY over the medium term, and will look to increase our JPY short once positioning looks less stretched," analysts at Citigroup wrote in a note to clients.

For now, Citi reduced its underweight yen position primarily because currency traders have become increasingly short since mid-November.

The expected change of government and prospects of drastic easing will weaken the safe-haven yen further over the next year, according to the latest Reuters poll for December.

The euro rose to as high as $1.3127 on Wednesday the EBS trading platform, its highest level since mid-October. It was last buying $1.3068, up slightly from late U.S. levels.

The euro will probably hold its value against the dollar over the next month after rallying over the last few weeks, but a persistently weak euro zone economy will put it under pressure next year, according to the latest Reuters poll.

The euro was nearly flat against the yen, after hitting a 7 1/2-month high of 107.95 yen on Wednesday.

The yen was also nearly flat against the dollar, which last stood at 82.44 yen, well shy of its 7-1/2 month high of 82.84 yen hit last month.

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