Euro drops ahead of ECB meeting, yen looks past BOJ doves

The euro dipped below $1.16 ahead of the European Central Bank meeting on Thursday as investors waited to hear policymakers' views on the outlook for inflation and an expected push back against rising interest rate projections.

On a busy day for central bank-driven activity, the Australian dollar dipped on growing speculation about the Reserve Bank of Australia's tightening plans while the yen was unruffled after the Bank of Japan stuck with its dovish stance.

Analysts expect the ECB to push back against growing expectations for a rate hike next year, even though it may admit that inflation will be higher than projected. Euro zone inflation expectations are also soaring, with one market gauge hitting a seven-year high this month.

The euro fell 0.2% to at $1.1586 by 0950 GMT. The dollar index was little changed at 93.94 .

"Most in the market probably expect some kind of pushback against the market pricing of 2022 ECB tightening, where a 10bp rate hike is now priced for next September. This all seems a little obvious and perhaps a reason for EUR/USD not to sell-off were Lagarde to deliver," ING analysts said in a note.

The Japanese yen nudged slightly higher to 113.71 per dollar but remained close to four-year lows.

The BoJ cut its consumer inflation forecast for the year ending in March 2022 to 0% from 0.6% and as expected the overall takeaway reinforced market bets it will lag other central banks in dialling back crisis-mode policies.

Aussie surprise

The Australian dollar dipped 0.1% to $0.7512, near its three-month top as Australian bond yields surged to their highest since mid 2019 after the central bank declined to buy a government bond at the heart of its stimulus programme, even though yields were well above its target of 0.1%. 

The yield target is central to the RBA's case that the 0.1% cash rate will not rise until 2024, so any failure to maintain it fuels market wagers that rates will have to rise much earlier, perhaps even by mid-2022.

The Aussie initially fell 0.5% after the RBA statement but soon erased those losses.

Third-quarter GDP data for the U.S. is due out later, with expectations, it will show weakening momentum in the U.S. economy.

"The consensus view is that the numbers will be poor, but that recent data has been strong enough to insulate the dollar against too much weakness," said Jeremy Thomson-Cook, chief economist at payments firm Equals Money.

In cryptocurrencies, bitcoin rose 4% to $60,845, rebounding after its slide from its record high of $67,016 on 20 October.