* Expectations of optimistic ECB tone help euro
* Dollar index just off seven-month high
* Odds now point to December U.S. rate rise
* Eyes on China GDP, ECB, U.S. presidential debate
(Adds more quotes, sterling moves)
By Patrick Graham
LONDON, Oct 17 The euro steadied on Monday ahead
of a meeting of the European Central Bank (ECB) on expectations
that officials are beginning to consider reining in the volume
of extra emergency aid they give to the euro zone economy next
The dollar has had its best fortnight for more than a year
against a basket of currencies -- up 2.5 percent since
the start of October -- but the shift upwards in U.S. bond
yields behind that move looks to be running out of steam.
On the European side of the equation, the ECB is still
expected at some stage to announce an extension of its
quantitative easing programme beyond next March.
But there is speculation that the bank, like many of its
peers, is at least beginning to question the wisdom of an
endless policy of money-printing and ultra-low interest rates
that keep downwards pressure on the euro.
"The market broadly sees that the ECB is going to be
somewhat more positive on the outlook for Europe this week,"
Citi's G10 FX strategist in London, Richard Cochinos, said.
"They still will need to announce more accommodative policy
next year, but it does seem that they may also believe the need
for ever greater accommodation is decreasing. That is leaving
the euro positive on the (non-dollar) crosses."
The euro, which fell below $1.10 for the first time in
almost three months last week, gained 0.1 percent in early
The dollar index was down less than 0.1 percent at 97.970
after touching 98.158, its highest since March 10.
Another big element of the past fortnight's rise has been a
retreat in the yen from levels around 100 per dollar. The U.S.
currency was flat at 104.135 yen on Monday after rising
as high as 104.480 on Friday.
The dollar took support on Friday from strong U.S. retail
sales and producer price data for September, another sign that
the U.S. economy regained momentum in the third quarter after a
lacklustre first half.
Speculators lifted favourable bets on the dollar for a third
straight week, with net longs hitting their highest in more than
eight months, according to Reuters calculations and data from
the Commodity Futures Trading Commission (CFTC) released on
The CFTC data showed speculators cut yen net longs to 45,000
contracts from about 70,000 the week before, reflecting the
growing conviction that the U.S. Federal Reserve will raise
interest rates in December.
The morning's biggest mover among the majors was again
sterling, back under pressure less than a cent above last week's
lows of $1.2090 and down 0.6 percent against the euro.
After Bank of England Governor Mark Carney indicated the
bank was not indifferent to the exchange rate on Friday, Deputy
Governor Ben Broadbent again pointed to its willingness to let
the currency fall if it cushioned the economy from
"Given the new market dynamic we ... recommend selling GBP
initially to 1.20 and further and for the euro to break above
0.92 pence," Nomura analyst Jordan Rochester said in a note.
(Additional reporting by Shinichi Saoshiro; Editing by Louise
Ireland and David Goodman)