NEW YORK (Reuters) - The euro weakened against the greenback on Wednesday in choppy trading ahead of Thursday’s European Central Bank policy announcement and the UK general election.
The common currency was down 0.14 percent at $1.1259 after hitting a low of $1.1205 on reports suggesting the ECB Bank would lower its inflation targets.
Bloomberg, citing unnamed euro zone officials, said the central bank was preparing to lower its annual inflation forecast for the next three years to 1.5 percent, from 1.7 percent, 1.6 percent and 1.7 percent, respectively.
The new estimate, subject to approval at the two-day meeting of the Governing Council, would signal a softer line than many in currency and bond markets have been expecting. The ECB declined to comment.
“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.
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.
The dollar index .DXY, which tracks the greenback against six major rivals, was up 0.06 percent at 96.698.
“Currency markets are watching the UK election, the ECB meeting tomorrow and then casting eyes forward to the Federal Reserve meeting next week,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.
Traders also remained watchful ahead of Thursday’s U.S. Senate testimony of James Comey, the former Federal Bureau of Investigation sacked by President Donald Trump in May.
Comey accused Trump on Wednesday of trying to get him to water down the FBI probe into Russia’s alleged interference in the 2016 U.S. presidential election, according to testimony posted on the Senate Intelligence Committee’s website.
“I think it was viewed as somewhat less impactful than was anticipated or feared, but ultimately that is yet to take place and clearly the capital market reactions to that will be based on the actual events that transpire,” said Northey.
Sterling rose 0.41 percent against the dollar to $1.296, with investors increasingly taking the view that Prime Minister Theresa May’s party will win a majority in the election on Thursday.
Reporting by Saqib Iqbal Ahmed; Additional reporting by Ritvik Carvalho and Patrick Graham in London; editing by Grant McCool and Richard Chang