Euro Hits 10 Month-High on Dollar, as Central Banks Chart Divergent Courses

SINGAPORE/LONDON (Reuters) - The euro sat at a 10-month high against the dollar on Thursday, ahead of a European Central Bank meeting at which markets expect a half-percentage point rate increase, a day after the U.S. Federal Reserve slowed the pace of its rises to 25 basis points.

The Fed also said it had turned a corner in the fight against inflation, its first explicit acknowledgment that price increases are slowing, underpinning market expectations that the end of the central bank's rate-rise campaign is near and cuts could follow.

The dollar's most dramatic overnight dive came after Fed Chair Jerome Powell told a post meeting news conference that "the disinflationary process has started", although he also signalled that interest rates would continue rising and that cuts were not in the offing.

"It was very much a sort of relief ... that there was nothing there to really seriously challenge the market's prevailing view," said Ray Attrill, head of FX strategy at National Australia Bank (NAB).

"(Powell) said that rates are going to have to be restrictive for some time, but that doesn't dissuade the market from saying some time might be six months, rather than two years."

The Bank of England also meets on Thursday, with its rate decision due at 1200 GMT before the ECB's at 1315 GMT. Markets also expect a half-point increase from the British central bank.

Sterling, which rose 0.47% on Wednesday, held at $1.236, and the dollar slid against the Japanese yen, dropping to as low as 128.07, its lowest in two weeks.

The euro hit $1.1034 in Asian trading on Thursday, its highest since April 4, having jumped 1.2% on Wednesday. It was last at $1.100, broadly flat on the day, as the focus turned to the ECB meeting.

"A 50bp hike is widely expected as is a hawkish message that will support market pricing of a further 75-100bp of tightening into the summer," said Chris Turner global head of markets at ING in a note.