LONDON: The euro rose further off a one-year low against the dollar on Thursday as feverish speculation of an imminent round of quantitative easing by the European Central Bank cooled.
Sources told Reuters on Wednesday that the ECB was unlikely to take new policy action at its meeting next week unless inflation figures on Friday show the euro zone sinking significantly towards deflation. That prompted speculators to trim huge bearish positions in the euro.
The common currency rose 0.1 percent to $1.3213 , up from Wednesday's low of $1.3151 on trading platform EBS - the euro's weakest since early September 2013. The euro had been struggling since the weekend after dovish comments from ECB President Mario Draghi, who said the central bank would use "all the available instruments" to ward off the threat of deflation.
Numbers due on Friday are expected to show a fall to 0.3 percent inflation in the euro zone - well into the ECB's "danger zone" of below 1 percent.
Traders will be closely watching preliminary German inflation data due later on Thursday to gauge how soft the overall euro zone number might be.
But if Friday's numbers do show the euro zone getting even closer to deflationary territory, that would not necessarily drive the ECB to act, despite Draghi's comments, some said.
"You could have argued that QE should have come along when inflation was at 0.8 or 0.9 percent, so we can't suddenly expect action just because inflation drops from 0.4 to 0.3, or even if it were to drop unexpectedly to 0.2," said Neil Mellor, a currency strategist at Bank of New York Mellon.
"There aren't any clear parameters the ECB is abiding by." Against the Swiss franc, the euro held steady at 1.2072 , up from Wednesday's trough of 1.2060, its lowest level since late 2012, which tested the Swiss National Bank's pledge to keep the euro above 1.20 francs per euro.
There was talk that the SNB was buying euros and selling the Swiss franc in a bid to push back speculators from challenging that floor, which was also helping the single currency.
The respite for the euro may not last very long, however, said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.
"The overall bias remains lower in the euro the only question within that is how far and how fast," Henderson said, adding that euro zone inflation data on Friday would be a focal point. "Our base case is still that the ECB is likely to do QE some time over the next four to six months," he said.
DOLLAR SOFTER
The rebound in the common currency knocked the dollar index off a 13-month peak. It last stood at 82.381, down from the high set on Wednesday at 82.727.
Against the yen, the dollar eased 0.1 percent to about 103.77 yen, having retreated from a seven-month high of 104.49 yen set on Monday. Meanwhile, the Australian dollar fared well, touching a three-week high of $0.9373 after data showed a better-than-expected outlook for Australian business investment.
It last stood at $0.9357, up 0.2 percent on the day.
Later on Thursday, an update to second quarter US growth data should also garner some attention, although the report is likely to confirm that the economy rebounded sharply from the first quarter.
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