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By Toni Vorobyova
LONDON, April 30 (Reuters) - The euro fell to a four-week low against the dollar on Wednesday as weak euro zone sentiment data and slowing inflation raised expectations that the European Central Bank may ease up on its hawkish rates stance.
In contrast, although the U.S. Federal Reserve is widely seen cutting rates to 2 percent later in the session, many reckon it may signal a pause in its 8-month-long aggressive easing cycle, thus ending erosion of the dollar's yield.
Such expectations, coupled with signs that the euro zone may not be able to avoid the global slowdown, have put the dollar on track for its first monthly gain versus the euro since October and its biggest percentage rise in 11 months.
"We had data from the euro zone with the CPI slightly on the downside, so there is a bit less strength in the euro, and at the same time in the dollar we are waiting for the Fed," said Carole Laulhere, FX strategist at Societe Generale in Paris. "I don't think they are very weak figures but...it shows that activity may be taking a break in the euro zone in coming months...So we think that the ECB may be a bit less hawkish."
By 1019 GMT, the euro was down 0.2 percent at $1.5536, about 10 ticks away from an earlier four-week low <EUR=>. It was 0.1 percent softer versus the yen <EURJPY=> and sterling <EURGBP=>.
Annual euro zone inflation slowed more than expected in April to 3.3 percent, data on Wednesday showed, still well above the ECB's 2 percent target ceiling.
At the same time, the European Commission's economic sentiment indicator fell more than expected to 97.1 -- its weakest since August 2005 and a further sign of that the euro zone is falling prey to the U.S.-led global slowdown.
SCOPE FOR DISAPPOINTMENT
The dollar was up 0.15 percent against a basket of six other major currencies at 72.968 .DXY.
The market's confidence about pricing in an end to Fed easing could be tested before the decision, with a first glance of U.S. first quarter GDP data.
The figures, due at 1230 GMT, are expected to show the U.S. economy grew at 0.2 percent in the quarter, its slowest pace in over five years as consumers curbed spending and jobs disappeared.
"Looking ahead, we expect activity to remain weak and for the economy to disappoint in Q2, implying that today's 25 basis-point cut is not the end of the cycle as growth risks will entice the Fed to cut again by 25 basis points in June," Calyon strategists said in a note to clients.
Analysts said that with markets priced for a relatively neutral Fed statement, any signal that the central bank will continue cutting interest rates could spark a sharp sell off in the dollar.
Reports on Tuesday highlighted the depths of the U.S. economy's troubles, with house prices posting a record drop in February and consumer confidence hitting a five-year low in April [ID:nN29321465].
The Fed has slashed interest rates by 3 percentage points since September in a bid to limit the ravages of the ongoing global credit market crisis on its ailing economy.
(Editing by Gerrard Raven)