The euro fell against the dollar on Thursday as investors struck a cautious tone with European Central Bank policymakers seen likely to change tack and flag a pause in the recent monetary tightening cycle. The ECB left rates on hold at 1.50 percent as expected, with the market betting that ECB president Jean-Claude Trichet would strike a more dovish tone in a press conference at 1230 GMT.
The euro was down 0.4 percent at $1.4036 but held above its 200-day moving average around $1.4023, with major resistance seen around $1.4200, the 38.2 retracement of its fall from late August to early September. Traders cited bids at $1.4000-$1.4025, while bids from Asian central banks are seen in the $1.3970-75 area.
The ECB is also widely expected to lower its inflation forecasts. Money markets are pricing in a chance of a cut as early as October, as the debt crisis shows no sign of letting up and the global economic outlook deteriorates. Investors will also be looking at what Trichet says about its buying of peripheral debt given internal divisions over the ECB's bond-buying programme.
Data from Greece showed the economy shrank 7.3 percent in the second quarter from a year ago, highlighting the difficulties indebted countries face in trying to bring their deficits down. Sterling turned higher, rising back above $1.60 against the dollar after the Bank of England kept interest rates at 0.5 percent and made no changes to its asset-purchasing programme.
The result was expected but traders said the pound gained on short-covering by some market players who had priced in the chance that it may initiate more economic stimulus. Meanwhile, any enthusiasm for more bearish bets on the euro may be countered by expectations that US Federal Reserve Chairman Ben Bernanke, speaking at 1730 GMT, might drop clearer hints on the likelihood of more stimulus later this month.
The greenback dipped 0.1 percent to 77.14 yen. Selling by Japanese exporters was seen capping the pair below 77.50 yen, though wariness about official intervention limited weakness in the dollar. The dollar index was up 0.05 percent at 75.526. The dollar was up 0.9 percent against the Swiss franc, hitting a 3-1/2 month high of 0.86539 francs on trading platform EBS. The Swiss franc has been broadly under pressure since Tuesday when the Swiss National Bank imposed a floor on the euro/Swiss franc pair at 1.2000 francs.
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