* Euro hits 9-day low after drop in Saxony annual inflation
* Euro zone short-term rates pulled low by ECB sources report
* Four of bank’s policymakers due to speak on Thursday
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, March 30 (Reuters) - A swing in sentiment against the euro dominated major currency markets for a second day on Thursday, weak initial readings of German regional inflation prodding the single currency back to nine-day lows against the dollar.
Dollar bulls are still recovering from the collapse in faith in the Trumpflation trade caused by last week’s defeat for the White House on healthcare and the greenback was again struggling to make progress past 111 yen.
But against the euro it gained around 0.2 percent in early deals in Europe, trading at $1.0737 after German state Saxony reported a slump in annual inflation to 1.8 percent from 2.4 percent a month ago.
That was below the European Central Bank’s roughly 2 percent target and followed a blow to the euro from signs that ECB officials were unhappy at a shift in market expectations towards tighter monetary policy and higher euro zone interest rates.
“We really want to get through a bit more data before we draw conclusions but yesterday clearly put a dampener on front end rates and that has weakened sentiment towards the euro,” said Citi G10 currencies strategist Josh O‘Byrne.
“The mood around the dollar has softened a lot. On balance I think most people still buy into this stronger global demand story but it may be a bit late in the day to be chasing this theme.”
The fall for the euro, down from a 4-1/2-month high of $1.0906 scaled on Monday, helped the broader dollar index into positive territory, up 0.1 percent at 100.15.
Sterling, knocked back by the dollar’s recovery as Prime Minister Theresa May lodged Britain’s formal request to leave the European Union on Wednesday, was also down 0.1 percent at $1.2414.
The rest of the German numbers will drip out as the European morning continues. Appearances by four ECB policymakers will also be watched closely for confirmation of a Reuters report on Wednesday based on unnamed sources.
The sources said that policymakers were taken aback by markets’ move to price in an interest rate hike early next year and would be keen at their April meeting to reassure investors that easy-money policy was far from ending.
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