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Euro Gains From Near 3-Month Low as Inflation Data Disappoints

June 3 (Bloomberg) -- The euro rose against most of its major counterparts as traders speculated any stimulus measures this week from the European Central Bank won’t be enough to further weaken the 18-nation currency.

The shared currency rose from close to its lowest level in more than three months versus the dollar even as a report showed the jobless rate in the euro area was near a record in April. Demand for the dollar held amid an increase in Treasury yields before jobs data forecast to show an improving U.S. labor market. Australia’s dollar advanced after the Reserve Bank said growth appeared to be accelerating.

“Expectations are quite high for Thursday’s meeting, so the risk now tends to one of mild disappointment,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London.

The euro gained 0.3 percent to $1.3642 at 8:16 a.m. New York time, after slipping 0.3 percent yesterday. The currency fell to $1.3586 on May 29, the weakest since Feb. 13. The euro advanced 0.3 percent to 139.63 yen. The U.S. currency was little changed at 102.35 yen after gaining 0.6 percent yesterday.

“Many short euro positions are in place at the moment,” said Arne Lohmann Rasmussen, head of foreign-exchange research at Danske Bank A/S in Copenhagen. “If the ECB disappoints and perhaps only cuts the refi rate you will see a move higher in euro-dollar.” Short positions are bets a currency will weaken.

Inflation Slows

Euro-area inflation slowed to annualized 0.5 percent in May from 0.7 percent in April, the European Union’s statistics office in Luxembourg said today. Economists in a Bloomberg survey forecast a rate of 0.6 percent. Inflation has been at less than 1 percent for eight months, compared with the European Central Bank’s goal of just below 2 percent.

Unemployment fell to 11.7 percent in April from 11.8 percent a month earlier, according to Eurostat. The record-high is 12 percent.

The ECB is forecast to become the first among its major peers to implement negative interest rates when policy makers meet. Central bank officials including President Mario Draghi have signaled that all options, including negative rates and conditional liquidity for banks, are up for discussion.

Policy makers will cut the deposit rate to negative 0.1 percent from zero, according to 32 of 50 economists in a Bloomberg survey. Twelve more predicted a reduction to minus 0.15 percent. The ECB is working on a proposal for a conditional longer-term refinancing operation and expects to have a plan ready for the meeting, according to a central bank official familiar with the discussions.

To contact the reporters on this story: Eshe Nelson in London at enelson32@bloomberg.net; Rachel Evans in Hong Kong at revans43@bloomberg.net To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey

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