FOREX-Euro rises broadly ahead of ECB; yen weaker

* Euro climbs to 14-month high vs dollar; ECB ahead

* Yen at 11-month low vs euro, 6-month low vs dollar

* Carry trade revival hurts yen, BOJ policy loose
(Updates prices, adds details, quote, adds byline)

By Wanfeng Zhou

NEW YORK, April 6 (Reuters) – The euro rose on Wednesday to
a 14-month high against the dollar on speculation the European
Central Bank will signal further interest rate rises following
an expected increase this week, though there’s room for
disappointment.

The yen slid to an 11-month low against the euro and a
six-month low against the dollar. More losses were expected for
the yen as investors such as macro hedge funds add to bearish
bets, with the Bank of Japan looking set to lag other central
banks in tightening policy.

The ECB is widely expected to raise its benchmark rate by
25 basis points on Thursday, its first increase since July
2008. Many analysts expect ECB President Jean-Claude Trichet to
continue sounding a hawkish tone on inflation, which would
stoke market expectations for more rate rises this year.

“The markets are very bullish with respect to the
anticipated Trichet communique tomorrow. They expect quite
strongly that the ECB is heading toward normalization of
monetary policy,” said Dean Popplewell, chief currency
strategist at OANDA in Toronto.

The expectation for higher euro zone interest rates
contrasted with uncertainty in the United States over when the
Federal Reserve may begin to tighten policy. The U.S. economy
remains too fragile for the Fed to begin raising interest
rates, the president of the Atlanta Fed, Dennis Lockhart, said
on Wednesday. [ID:nN06207079]

The euro rose as high as $1.4350 (EUR=: Quote, Profile, Research), according to
Reuters data, its highest since late January 2010, and was last
up 0.8 percent at $1.4328.

Traders reported steady buying by Asian central banks, but
said large option barriers cited at $1.4350 and $1.4400 could
cap gains in the near term.

Citigroup currency strategist Todd Elmer said euro zone
rate expectations are close to their recent peaks, with money
markets discounting more than 100 basis points of ECB
tightening through November.

“Expectations for ECB hawkishness are at unprecedented
levels since the onset of the financial crisis and this could
leave room for disappointment if President Trichet fails to
validate the moves in market interest rates at his press
conference tomorrow,” he said in a note clients.

CARRY TRADE REVIVES

The struggling yen was in danger of breaching key long-term
support levels against most currencies, having already fallen
to a 2-1/2 year low against the Australian dollar.

The yen has slid since the first G7 intervention in a
decade last month, stirring talk of a carry trade revival — a
strategy of selling low-yielding currencies to fund investment
in currencies with higher interest rates.

“The yen is taking a lead as the global carry trade makes a
return with the Bank of Japan likely to ease policy while the
other central banks seek to tighten it,” said Lena Komileva,
head of G-10 currency strategy at Brown Brothers Harriman in
London.
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Carry trade graphic:
http://graphics.thomsonreuters.com/11/04/GLB_CARRY0411_SB.gif
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The euro was up 1.3 percent at 122.35 yen, having earlier
touched an 11-month peak (EURJPY=: Quote, Profile, Research), with stop-loss buying
earlier in the session adding to its rise.

The dollar was up 0.5 percent at 85.35 yen (JPY=: Quote, Profile, Research), after
hitting a six-month peak of 85.52 yen, almost 10 yen above its
record low of 76.25 yen hit in March, days after Japan’s
northeast was devastated by a massive earthquake and tsunami.

The high-yielding Australian dollar (AUDJPY=R: Quote, Profile, Research) surged to
89.28 yen, its highest since September 2008, with 90 yen seen
as the next possible target.

Against a basket of currencies, the dollar was down 0.5
percent at 75.504 (.DXY: Quote, Profile, Research).

(Additional reporting by Nick Olivari)
(Editing by Theodore d’Afflisio)

FOREX-Euro rises broadly ahead of ECB; yen weaker