July 20, 2017 / 12:29 PM / 2 months ago

FOREX-Euro slips to 2-day lows after ECB policy decision

* European Central Bank left ultra easy policy unchanged

* Dollar index stages biggest daily rise since July. 3

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, July 20 (Reuters) - The euro fell to a two-day low after the European Central Bank (ECB) left its ultra easy monetary policy stance unchanged.

The euro hit $1.14855, down 0.3 percent to a two-day low, off a high of $1.15320 before Thursday’s rate decision, but still maintaining gains of 3 percent since ECB President Mario Draghi’s Sintra speech last month.

Thursday’s decision means the ECB is keeping rates at record lows and even leaving the door open to more asset buying if the economic outlook worsens.

“While they may be leaning towards an exit from stimulus policies, they don’t want to tip their hands yet and the strategy seems to be postponing any decision to September,” said Michael Hewson, chief markets strategist at CMC Capital Markets who believes the euro should weaken more from current levels.

With the common currency up 3 percent over the last month and German bond yields firming in recent weeks, market expectations had built up prior to the decision that the ECB would tweak its policy to signal an impending policy tightening.

Draghi’s June 27 comments in Sintra, Portugal, hinting at the possibility of changes to the central bank’s aggressive stimulus sparked a “taper tantrum” that sent the euro and bond yields sharply higher.

The U.S. dollar rose for a second successive day against a trade-weighted basket of its rivals after falling to a 10-month low earlier this week.

The dollar’s gain was more striking against the relatively higher yielding currencies such as the Australian dollar and the New Zealand dollar, against which it has suffered heavy losses in recent weeks.

Against a trade-weighted basket of six major currencies , the dollar stood at 95.140, up 0.4 percent, its biggest single day rise since July. 3 and moving further away from a 10-month low of 94.476 touched on Tuesday.

A combination of key U.S. economic data -- second quarter GDP data is due later this month -- and shorting of the dollar has prompted some investors to trim bearish bets.

Morgan Stanley strategists noted that short positioning in the greenback was at its most extreme since April 2009.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Reporting by Saikat Chatterjee; editing by Alexander Smith

Our Standards:The Thomson Reuters Trust Principles.
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