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Forex - Euro edges down from 14-month highs with ECB meeting in focus

Investing.com -

Investing.com - The euro pulled back from its highest level since May 2016 against the U.S. dollar on Wednesday as market participants awaited the outcome of Thursday's European Central Bank policy meeting.

EUR/USD slipped 0.19% to 1.1530 by 05.52 a.m. ET (09.52 a.m. GMT), still not far from Wednesday's highs of 1.1582.

Anticipation has been building ahead of the meeting after ECB President Mario Draghi sent the euro higher with hawkish comments on the euro zone recovery in a speech in Sintra, Portugal late last month.

The remarks appeared to signal a shift towards tapering monetary stimulus, but Draghi also reiterated that any changes to the stimulus program will be "gradual" and "cautious."

The ECB is facing a balancing act between reducing stimulus as the economy strengthens while markets remain jittery and inflation remains below the bank's target of close to, but just under 2%.

The risk is that the process of scaling back stimulus could spark a 'taper tantrum,' sending the euro and borrowing costs higher, effectively choking the recovery.

The minutes of the bank's June meeting showed that policymakers discussed removing from its statement a pledge to increasing asset purchases if the economy takes a turn for the worse.

On Wednesday, ECB policymaker Francois Villeroy de Galhau said the bank has made progress on steering inflation to its target, but added that accommodative monetary policy is still necessary.

Meanwhile, the dollar was nursing losses near-multi-month lows against a currency basket in the wake of a steep selloff sparked by fears that U.S. President Donald Trump is having difficulties implementing his policy agenda.

The U.S. dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, ticked up 0.13% to 94.57.

The index touched a low of 94.27 on Tuesday, the lowest trough since August 26, 2016 and is down more than 7% for the year to date.

The dollar sold off after Republican lawmakers pulled the plug on the latest version of a contentious bill to replace Obamacare, delivering a major policy blow to the Trump administration.

The failure to deliver on healthcare reform indicated that Trump's other legislative efforts, such as overhauling the tax code and implementing fiscal stimulus could face difficulties.

Recent weak U.S. inflation data and the prospect that other major central banks may join the Federal Reserve in tightening monetary policy have also fed into weakness in the dollar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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