* Euro at the highest since mid-March vs dollar
* The ECB is widely expected to expand the purchase of emergency bonds
* The 5-month Aussie retreats local retail
* Graphics: World Currency Rates in 2020 https://tmsnrt.rs/2RBWI5E
By Hideyuki Sano
TOKYO, June 4 (Reuters) – The euro held close to several months of highs against its peers on Thursday, expecting the European Central Bank to expand its bond buying program later in the day to bolster the coronavirus-affected economy.
The strength of the euro helped push the dollar’s index against a basket of key currencies to its lowest in almost three months, while optimism about the reopening of economies around the world also reduced dollar demand.
The Euro stood at $ 1.1220, down slightly the day after rising to $ 1.1258 on Wednesday, its highest levels since mid-March and the seven straight rise session.
Against the Japanese yen, the single currency rose to a high of 4-1 / 2 months at 122,625 overnight and was last at 122.21 yen.
It also fetched 1,0793 francs on the Swiss currency in the safe harbor, and had risen to as high as 1.0820, its strongest since January. 14th
The European Central Bank is widely expected to increase its $ 750 billion ($ 669 billion) Pandemic Emergency BuyProgram (PEPP) by Thursday.
The ECB delivers its political decision at. 1145 GMT, and ECB President Christine Lagarde will hold a news conference at 1 p.m. 1230 GMT.
The currency has been boosted by hopes of fiscal support measures in the European Union after Germany threw its weight last month behind the idea of an EU recovery fund breaking away from its long-standing tradition of resisting steps towards fiscal integration into the currency block.
“I suspect the market has already priced about $ 500 billion in PEPP, and in the short term there is a risk of a correction,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
“The market may respond positively if the ECB extends the target of its bond purchase or scraps its limit for each country. But in terms of overall size, it is hard to expect a positive surprise now,” he said.
The dollar index stood at 97,450, after falling approx. 1% so far this week, as a broad improvement in risk sentiment, supported by global reopening, reduced the lure of greenback.
On Wednesday, data showed that the U.S. private wages fell less than expected in May, suggesting layoffs ceased as businesses reopen, though the overall economy’s recovery following the COVID-19 pandemic will be slow.
Optimism towards economic reopening and recovery continued to dominate the market despite social unrest in the US and bridge diplomatic tensions between Washington and Beijing.
Yen in the safe harbor also weakened for much of this period, trading last at 108.96 yen, near a two-month low of 108.98 hit in the U.S. acting earlier.
Sterling changed hands to $ 1.2576, near the strongest in more than a month, aided by signs that the UK might be willing to compromise on setting points in Brexit talks with the EU.
The UK is expected to indicate flexibility in relation to fisheries and trade rules if the European Union accepts to learn its regulatory adaptation and fisheries requirements, the Times reported on Tuesday as a new round of talks starts.
The United Kingdom has until 1 July to request an extension of the current transitional period ending in December.
The Australian dollar slipped easily to $ 0.6895, which consolidated after hitting a five-month high of $ 0.6982 on Wednesday.
The market took the record drop in the country’s retail sales in its progress.
“The mood of the market is still risky. But I have the impression that the rally in some currencies, such as the Australian dollar, is a bit overheating,” said Hiroshi Morimatsu, forex director at MUFG Bank. (Editing by Shri Navaratnam and Jacqueline Wong)