FOREX-Euro eases from peaks as ECB hikes already priced in

* Euro hits 5-month high vs dollar, then slips back

* Single currency eases from 11-mth high vs Yen

* ECB rate hike expectations may be fully priced
(Recasts, updates prices; dateline previously LONDON)

NEW YORK, April 4 (Reuters) – The euro fell from 11-month
highs against the yen on Monday and a five-month peak against
the dollar, with expectations of an increase in euro zone
interest rates already priced in by investors.

The European Central Bank at its policy meeting on Thursday
is expected to raise rates by 25 basis points from a record low
in reaction to rising inflationary pressures in the euro zone,
with two more 25 basis point hikes factored in by year-end.
(ECBWATCH: Quote, Profile, Research)

Bids from Asian central banks and other investors are
likely to offer solid support to the euro at $1.4190 against
the dollar, with stops through to below $1.4150 also cited by
traders.

Analysts said there were plenty of event risks this week,
including a number of central bank rate decisions in the
developed world and a slew of speakers from the U.S. Federal
Reserve, that could see investors adopt a wait-and-see stance.

The Bank of Japan is likely to downgrade its economic
assessment and keep policy ultra-loose on Wednesday, while
comments from a senior Federal Reserve official on Friday
highlighted divergence and uncertainty over the need to tighten
monetary policy in the United States.

“It’s difficult to sell the euro going into Thursday’s ECB
meeting,” said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington. “But there is
limited upside and we would need to hear surprisingly hawkish
comment from ECB president Jean-Claude Trichet for a
sustainable move higher in the euro.”

The euro (EUR=: Quote, Profile, Research) rose but stalled ahead of its November 2010
high as resistance around $1.4281 loomed. It was last at
$1.4238, up 0.1 percent.

Technical analysts also highlighted trendline resistance
drawn from the euro’s record high struck in July 2008 coming in
around $1.4300.

“The move wider in EUR/USD rate differentials seems to have
lost some of its impetus in the run-up to the ECB rate decision
indicating that some euro positives are already priced in by
the market,” said Valentin Marinov, analyst at CitiFX in a
note.

The euro briefly popped above 120 yen (EURJPY=: Quote, Profile, Research) for the
first time since May 2010 but retreated to 119.55, down 0.1
percent from late U.S. trade on Friday.

One of the Federal Reserve’s most powerful policymakers,
William Dudley, president of the New York Federal Reserve Bank,
on Friday went against an increasingly hawkish tone from some
other Fed officials worried about inflation, saying he saw no
need for the central bank to reverse course. [ID:nN01154414]

FED POLICY DIVERGENCE

Better-than-expected U.S. employment data on Friday,
hinting at a stronger recovery and the possibility for higher
U.S. rates, gave the greenback some support.

Against the yen, the dollar fell 0.1 percent to 83.98 yen
(JPY=: Quote, Profile, Research). It had hit its highest level since September on Friday
on trading platform EBS, stalling ahead of an option barrier at
84.75. Traders reported good interest to sell dollars into the
85.00 area.

It rose above its 200-day moving average last week, in a
sign that the downtrend against the yen may have run its
course.

The pair will be sensitive to a host of Fed speakers who
are due to speak later on Monday, including Fed chief Ben
Bernanke. Atlanta Fed President Dennis Lockhart and Chicago Fed
chief Charles Evans are also scheduled to speak.

Last week, hawkish comments from a number of Fed
policymakers helped the dollar rebound on the yen, before it
ran out of steam following dovish comments from Dudley.

Noting comments from St. Louis Fed chief James Bullard to
the New York Fed’s Dudley, Lena Komileva, head of G-10 currency
strategy at Brown Brothers, said, “The policy flow of the past
week has reflected a growing divergence in the degree of
confidence surrounding the economy’s outlook, which is not
unusual for turning points in the Fed’s cycle.”

The yen hovered near recent lows on the crosses,
particularly against higher yielding currencies like the
Australian dollar.

The Aussie again traded to it highest since being freely
floated in 1983 (AUD=D4: Quote, Profile, Research). It slipped back to trade at 1.0364,
down 0.3 percent on the day.
(Reporting by Nick Olivari; Editing by Leslie Adler)

FOREX-Euro eases from peaks as ECB hikes already priced in