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The euro hovered near a four-month high against the dollar on Thursday on expectations the European Central Bank will move towards an eventual rate hike.
With many market players already counting on the central bank to send strong signals that it will raise rates to counter inflation, there is a risk the euro will slip after an ECB meeting on Thursday, some traders said.
Some market players think the bank will stop supplying three-month liquidity in the second quarter, switching the operations back to capped-limit, variable rate tenders - a step in the phasing out of crisis support that could lead to a rate hike.
But others see the chance of the bank extending the measure in light of lingering worries about bank funding in some euro zone periphery countries -- an outcome that could push back market expectations of a rate rise.
"I think the euro rally will fizzle after the ECB today. There has been a lot of hype in the market on the ECB for some time, so I expect the euro to lose steam pretty much regardless of what the ECB does today," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
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