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ECB seen cutting rates by 25 bps

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Yen eases slightly from 2024 high

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U.S. data douse hopes for big Fed cut

(Updates prices as of 0846 GMT)

By Sruthi Shankar and Kevin Buckland

Sept 12 (Reuters) - The euro hovered near a four-week

low versus the dollar on Thursday ahead of a widely anticipated

interest rate cut from the European Central Bank, with traders

focussed on the policy outlook to gauge the extent of further

rate cuts.

The euro was last up 0.06% at $1.1018 but remained

close to the prior session's low of $1.1002 - its weakest level

since Aug. 16.

The ECB is almost certain to cut interest rates by 25 basis

points (bps) again later on Thursday, having lowered its deposit

rate to 3.75% in June.

An array of policymakers have already backed a cut this

month, suggesting their debate is likely to focus on how quickly

borrowing costs need to fall in subsequent meetings against the

backdrop of anaemic economic growth and cooling inflation.

"We're a little bit more downbeat about the outlook for the

euro zone," said Colin Asher, senior economist at Mizuho Bank.

"And the fact that inflation risks have probably shifted

more towards the downside and inflation expectations are under

control will probably allow the ECB to cut not only in September

and December, but also in October."

While another cut by December is fully priced into financial

markets, the chance of an interim move in October is put at

about 37%.

Overall, traders are pricing in 64 bps of cuts from the ECB

by the end of the year compared with 103 bps from the Federal

Reserve, which looks set to cut borrowing costs next week for

the first time in four years.

Data on Wednesday showed U.S. consumer prices rose

marginally in August, but underlying inflation showed some

stickiness. As a result, traders pared bets of a 50-bp rate cut

by the Fed on Sept. 18 to 13% from 40% a week ago, CMEGroup's

Fedwatch tool showed.

"Market pricing for 2024 Fed cuts had been close to its

ceiling, leaving it vulnerable to signs of U.S. data steadying

out," TD Securities analysts wrote in a report.

VOLATILE YEN

The dollar gained against the yen, following a turbulent

session the previous day that saw the U.S. currency slide as

much as 1.24% to the lowest this year before recovering all its

losses after the consumer price data.

Early on Wednesday, Bank of Japan board member Junko

Nakagawa reinforced the central bank's tightening bias by saying

low real rates leave room for further rate hikes.

Fellow board member Naoki Tamura, known as a policy hawk,

said on Thursday the BOJ must raise rates to at least 1% as soon

as the second half of next fiscal year but added that it would

likely raise rates slowly and in several stages.

The speeches are a sign of an important shift in

communication style at the bank, according to Shoki Omori, chief

Japan desk strategist at Mizuho Securities.

"The BOJ is trying to get markets to price in a hike using

forward guidance instead of using media outlets, which is a good

change," he said. "But markets aren't used to it, so that's one

reason why yen volatility has risen in recent weeks."

The dollar was up 0.16% to 142.56 yen at 0846 GMT, after

earlier gaining as much as 0.41%. It dipped as low as 140.71 for

the first time since Dec. 28 in the prior session, following

Nakagawa's comments.

Sterling was steady at $1.3045, after dipping to $1.30025 in

the previous session, its lowest since Aug. 20.

The Swiss franc was on the back foot, with the

dollar gaining 0.2% to 0.8543 franc, touching its highest since

Aug. 21 at one point on Thursday.