May 8, 2014 / 4:18 PM / 4 years ago

FOREX-Dollar gains against euro as Draghi hints at action

* U.S. dollar gains against euro on Draghi comments

* Euro earlier rose to a 2-1/2 year high against the dollar

* Dollar index rises 0.15 percent (Adds comments, details from ECB meeting, Yellen testimony; updates prices)

By Karen Brettell

NEW YORK, May 8 (Reuters) - The dollar gained against the euro on Thursday after European Central Bank President Mario Draghi said the bank might act to stem falling inflation at its June meeting, erasing the dollar’s earlier fall to a 2-1/2 year low.

Draghi said that the ECB’s governing council is comfortable with the bank acting in June if price inflation forecasts warrant it.

Many economists expect a downward revision in the ECB staff’s inflation forecasts, which could open the way for more stimulus such as an interest rate cut or new liquidity injections.

“They signaled through the press conference that a rate cut is likely in June. That has capped the move higher in the euro,” said Martin Schwerdtfeger, a foreign exchange strategist at TD Securities in Toronto.

The euro was last down 0.34 percent against the dollar at $1.3864. It earlier rose to $1.3992, the highest since November 2011.

Draghi also flagged his concerns about the strength of the euro, which has gained more than 4 percent in the past six months and has helped ease inflation that is already running at subdued levels.

“He said the currency is a serious concern...a strong currency is going to be a factor that is going to weigh on inflation,” said Eric Viloria, a currency strategist at Wells Fargo Securities in New York. “His comments were quite dovish.”

The ECB meeting was the main driver of U.S. dollar price moves on Thursday even as Federal Reserve Chair Janet Yellen testified on the U.S. economic outlook before the U.S. Senate Budget Committee.

Yellen repeated comments from Wednesday indicating that the Fed was likely to keep benchmark overnight interest rates near zero for some time given the “considerable degree of slack” in the U.S. labor market.

She further urged the U.S. Congress on Thursday to address the nation’s long-term budget challenges, warning that the current course was unsustainable.

The dollar was up 0.24 percent against the Japanese yen at 101.64. The dollar was down 0.23 percent against the Swiss franc to trade at 0.8783 francs.

The U.S. dollar index, which measures the dollar against six major currencies, gained 0.20 percent to 79.36. (Editing by Peter Galloway)

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