The euro was steady against the dollar on Thursday but seen vulnerable to any hint of further interest rate cuts from the European Central Bank at its regular post-policy meeting news conference. The ECB kept interest rates on hold, but this was widely expected and the euro showed little reaction. It was last steady at $1.3065, having retreated from Wednesday's seven-week high of $1.3127.
Investors turned their attention to a news conference by the bank's president Mario Draghi at 1330 GMT. Analysts said any hint interest rates could be cut next year would see the euro fall, potentially towards this week's low of $1.2973. The euro traded well below a reported option barrier at $1.3150.
"The market is wondering if the ECB will hint at a rate cut to come, and if it does this could point to a weaker euro. But the euro is still in rally mode until it gets back below $1.30," said John Hardy, currency strategist at Saxo Bank. "I expect Draghi to be slightly optimistic in his tone, emphasising soft data improving, peripheral spreads tightening and the success of the OMT plan," said Amit Patel, a trader at currency hedge fund Sharpe + Sigma, which has assets under management of $80 million.
Concerns about the US fiscal debate also tempered any euro's gains, as it tends to weaken in times of uncertainty. There was little sign of progress in the talks, aimed at avoiding the "fiscal cliff", on Wednesday. The euro slipped by 0.15 percent to 107.63 yen, off a 7-1/2 month high of 107.95 yen hit on Wednesday. The dollar also fell 0.15 percent to 82.35 yen, but it was still not far from an eight-month high of 82.84 yen hit on November 22.
The yen was seen staying weak due to expectations of pressure on the Bank of Japan to ease monetary policy following an election on December 16. Elsewhere, the Australian dollar rose 0.4 percent on the day to a 2-1/2 month high of $1.0497, buoyed as surprisingly strong Australian jobs data prompted investors to reduce expectations of further policy easing.
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