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FOREX-Euro climbs ahead of ECB meeting, Fed-driven dollar rally unwinds

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* Euro rises above $1.18; all eyes on ECB signal on QE

* Fed consensus sees four rate hikes in 2018, three hikes in 2019

* Yuan barely budges after PBOC keeps rates on hold

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Tommy Wilkes

LONDON, June 14 (Reuters) - The euro climbed above $1.18 on Thursday on rising expectations the European Central Bank will signal an end date for its vast stimulus programme at its policy meeting later.

The dollar was weaker, erasing brief gains after a slightly more hawkish U.S. Federal Reserve statement on Wednesday.

The Fed hiked interest rates as expected and future rate rises were now priced in with a growing view that U.S. economic strength could be nearing its peak, analysts said.

Some investors also interpreted Fed Chairman Jerome Powell’s comments on inflation overshooting target as a signal the bank would be happy with higher inflation without needing to tighten policy further, said Ulrich Leuchtmann, a currencies strategist at Commerzbank in Frankfurt.

Investors are of the view that the ECB, which is yet to begin tightening policy, will signal on Thursday an end to its huge asset purchases at the end of 2018.

That speculation has grown since several central bank officials said they would debate that decision, helping the euro to rebound.

“From a market point of view if we get a signal from the ECB about APP (asset purchase programme) ending, this will be beneficial for the euro,” said Mathias van der Jeugt, a strategist at KBC. “Short term, the currency could go to $1.1830, heading to $1.20.”

The euro gained 0.3 percent to $1.1828, close to three-week highs, as the ECB’s policy announcement, due at 1145 GMT, approached.

Other analysts said euro strength was unfounded, given the Fed’s clear message that it was still in a reactive mode - thereby ready to raise rates if inflation is higher-than-anticipated - while the ECB may dither on its tightening.

“The more important point for the ECB is will they sell it (ending asset purchases) as the beginning of the end of a period of extraordinary stimulus policies or will they water it down?” said Commerzbank’s Leuchtmann, predicting the latter and that the euro would weaken.

As expected, the Fed lifted its key overnight borrowing costs by a quarter percentage point for a second time this year, to between 1.75 and 2.00 percent.

It also ended its pledge to keep rates low enough to bolster the economy for “some time” and signalled it would tolerate above-target inflation at least through 2020. Policymakers projected two more rate increases by the end of this year, compared to one previously.

The dollar index dipped 0.4 percent to 93.270, a one-week low.

Fresh concerns about U.S.-China trade relations also weighed on the dollar, particularly against the yen, which is sought in times of market uncertainty.

U.S. President Donald Trump will meet with his top trade advisers on Thursday to decide whether to activate threatened tariffs on billions of dollars of Chinese goods, a senior Trump administration official said.

The dollar traded as weak as 109.92 yen, down 0.4 percent on the day, having lost steam after hitting a three-week peak of 110.85 shortly after the Fed’s policy statement.

Elsewhere, the People’s Bank of China left borrowing costs for interbank loans unchanged on Thursday, a surprising decision that shrugged off the U.S. rate increase.

The yuan’s immediate reaction to the PBOC not raising borrowing costs was limited, with the currency roughly flat at 6.393 yuan against the dollar.

The Australian dollar fell 0.3 percent to $0.7556, as the Fed’s rate rise underlined that the Australian central bank remains some way from following suit. (Additional reporting by Dhara Ranasinghe Editing by Toby Chopra and Susan Fenton)

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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