By Sujata Rao and Tommy Wilkes
LONDON (Reuters) - A slump in the euro zone's biggest trading partners' currencies this year is blunting any boost that the euro's weakness versus the dollar could provide the region's exporters.
Two months before the European Central Bank is scheduled to begin winding up its crisis-era bond-buying program, the task is being complicated by signs that the bloc's economic momentum is running out of steam, and the euro is not helping.
While the single currency's 5 percent drop against the dollar (EUR=) in 2018 has captured the headlines, in "effective" terms it is roughly flat since January and close to four-year highs.
That is according to an ECB-compiled index
GRAPHIC: Weights of trading partner countries in the euro's effective exchange rate - https://tmsnrt.rs/2OFFqai
Shifting trade patterns have diminished the dollar's role in the euro's trade-weighted basket to 17 percent from 22 percent in 2003.
By contrast, emerging currencies account for more than half, led by China's yuan on around 23 percent, up from sub-10 percent in 2003.
Hit by the United States's trade levies, the yuan has fallen across the board; against the euro it has lost 6 percent (EURCNY=) since June and around 1 percent since January.
That undermines the ECB's desire for a weaker euro to help stir stubbornly low inflation and support exporters at a time when slowing global growth momentum and trade tensions are dampening demand.
GRAPHIC: Euro flat year-to-date in "effective" terms - https://tmsnrt.rs/2OXOnMr
Many economists expect the ECB to lower its growth forecasts at its December policy meeting.
"What is under-appreciated is that there's been a massive break between euro trade-weighted and euro-dollar, and it's the former that really matters for the export sector," said Tim Graf, State Street (NYSE:STT) Global Advisors' head of EMEA macro strategy.
"On that basis the euro is actually very strong because of Brexit, yuan depreciation and Turkey. The lira alone added 0.7 pct to the trade-weighted euro basket," Graf said, referring to the summer selloff that saw the lira hit record lows.
To be sure, a sturdy euro is not the main worry for ECB policymakers grappling with fading economic momentum and ructions in Italian bond markets.
Marchel Alexandrovich, an economist at Jefferies, said the euro was "not something the ECB is going to lose sleep over", arguing that a stronger currency may prove a bigger concern after quantitative easing ends.
But the euro's strength comes as worries about growth increase - euro zone economic expansion slowed in the third quarter, and third-biggest member Italy stagnated.
Negative economic surprises, according to Citi's barometer, have gathered steam. <.CESIEUR>
While overall consumer price growth in the euro zone accelerated last month to 2.2 percent, the closely watched "core" inflation rate stood at 1.3 percent. The bank's inflation target is 2 percent.
A key gauge of markets' long-term inflation expectations is also near its lowest in a year.
Policymakers hope higher wages will fuel a rise in inflation soon.
ECB president Mario Draghi played down growth concerns last week, noting "weaker momentum, not a downturn," and sticking to plans to exit stimulus at year-end.
"They don't have much wiggle room, because anything hawkish will strengthen the euro and they just won't want that with export growth starting to moderate," said State Street's Graf.