LONDON: The euro stabilised on Friday but was on track for its biggest monthly drop in 17 months as traders questioned how much firepower the European Central bank could potentially roll out to support a struggling economy and boost inflation.
June data at 1000 GMT is expected to show monthly euro zone inflation of 1.2% -- well short of the ECB's target of just under 2%. Policymakers have promised more stimulus if needed but some investors are sceptical.
"The elbow-room for the ECB to ease policy is far more limited than the (U.S.) Fed and that is weighing on the euro," said Esther Reichelt, FX strategist at Commerzbank.
While inflation expectations in the United States and Europe have declined in recent weeks, as measured by forward-starting swaps, U.S. gauges have stabilised after the Federal Reserve opened the door to rate cuts last week.
In comparison, policy interest rates in Europe are already in negative territory and Europe's most widely watched measure of inflation expectations -- the five-year, five-year forward rate -- has started declining again.
Against the dollar, the single currency edged 0.1 percent higher at $1.1384. On a monthly basis, the single currency was set to weaken 1.6%, its biggest monthly drop.
The dollar index, which measures the U.S. currency against six of its peers, was at 96.217, unchanged on the week.
Markets are also hoping that a meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 in the Japanese city of Osaka will bring progress on trade.
Negotiations between the world's two largest economies have been fraught, however, and traders and analysts caution that a resolution at the G20 summit is far from certain.
Trump will meet Xi at 11:30 a.m. (0230 GMT) on Saturday.
The dollar traded at 107.66 yen, little changed on the day but on course for a 0.3% gain this week as the greenback mounted a recovery from a five-month low of 106.77 yen reached on Tuesday.
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