Euro shaky after report ECB to cut inflation outlook

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The euro was slightly weaker against the dollar on Wednesday, in choppy trading, on reports suggesting the European Central Bank would lower its inflation targets at Thursday's policy announcement.

The euro was down 0.17 percent to $1.1256, after having fallen to a low of $1.1205, its lowest since Friday.

Bloomberg, citing unnamed euro zone officials, said the central bank's staff forecasts for inflation for the next three years had been cut to 1.5 percent, from 1.7 percent, 1.6 percent and 1.7 percent, respectively in March.

Those have still to be approved by the two-day meeting of the Governing Council, the report said, but, if true, would be a signal of a softer line than many in currency and bond markets have been expecting. The ECB declined to comment on the report.

"That would suggest that it would be very difficult for the rate hawks on the governing council to force through an early departure from the very accommodative policy that the ECB is pursuing right now," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto, said.

The common currency has strengthened against the dollar over the last few months, benefiting from broad greenback weakness but also on the view that rising inflation would prompt the ECB to raise interest rates in early 2018.

The euro pared losses after a Reuters report cited sources as saying that the ECB is likely to nudge up its forecasts for economic growth in the euro zone even as it trims its inflation estimates.

This mixed outlook should strengthen the case for keeping the ECB's aggressive stimulus policy of massive bond purchases and sub-zero rates in place.

The dollar steadied after having hit a near seven-month low on Tuesday, largely because of nerves over the pace of U.S. growth and government policy that have cut U.S. Treasury yields to the lowest since November.

The dollar index, which tracks the greenback against six major rivals, was up 0.13 percent at 96.77. Against the yen, the greenback was up 0.37 percent to 109.81 yen.

Traders remained cautious before Thursday's election in Britain, which some worry may be far closer than some opinion polls indicate, and the U.S. Senate testimony of James Comey, the former FBI chief sacked by President Donald Trump in May.

Sterling was down 0.34 percent to $0.7721, staying near seven-month highs as investors increasingly take the view that Prime Minister Theresa May's Conservative Party will win a majority in parliament.