SYDNEY: The euro nursed broad losses early on Wednesday, having been put under pressure by soft German inflation numbers while the yen stayed on the defensive ahead of a policy decision by the Bank of Japan.
A key measure of German inflation came in at a lower-than-expected 1.1 percent on the year, raising the risk that the euro area reading will also undershoot expectations later in the day.
"A low April print would increase the likelihood of policy action next week," analysts at BNP Paribas wrote in a note to clients.
The European Central Bank (ECB) holds its policy review on May 8 although it is not expected to inject any fresh stimulus at this stage.
The euro last traded at $1.3810 after shedding 0.3 percent on Tuesday. On the yen, the common currency was at 141.73, having fallen 0.2 percent.
The euro suffered bigger losses against commodity currencies, skidding 1 percent against the Canadian dollar and 0.4 percent on the Australian dollar.
Renewed pressure on the euro helped the dollar index snap a five-session losing run.
The index was last at 79.814 after managing to close 0.1 percent higher on Tuesday. Holding the dollar index back was a solid performance by sterling after data showed Britain's economy posted its fastest growth in more than six years in early 2014.
That helped the pound stay within striking distance of a 4-1/2 year peak of $1.6858 set on Monday. It was last at $1.6827. Against the yen, the greenback touched a three-week peak of 102.79 before losing a bit of steam to last stand at 102.64.
The market is now waiting for the outcome of the Bank of Japan's policy meeting, expected from 0230 GMT.
The BoJ is likely to maintain its massive asset-buying stimulus and signal no imminent additional support. But Governor Haruhiko Kuroda is likely to remind markets that the central bank is ready to ease policy further if needed.
"We will need to see a material shift in the policy outlook for a larger move in the USD/JPY," said David Song, currency analyst at DailyFX in New York. Hot on the heels of the BOJ will be the Federal Reserve's own policy review. The Fed is set to continue paring stimulus with a $10 billion taper to its monthly bond buying widely expected.
As for when the Fed will actually start lifting interest rates, traders said anyone seeking clarity on that front will be left sorely disappointed.
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