Euro falls in London

The euro fell against the dollar on Thursday, with investors booking profits and as markets awaited the European Central Bank's latest comments on inflation after it kept interest rates on hold, as expected. The euro could rebound if US Federal Reserve Chairman Ben Bernanke, who is due to speak at 1730 GMT, reaffirms the Fed's focus on boosting growth, reinforcing expectations the ECB will raise rates ahead of the Fed.
Analysts said an upward revision to a eurozone services PMI and lower yields at a Spanish debt auction were positives for the euro, but the focus on the ECB's monthly meeting meant the currency barely reacted. Market players will be looking for further hints on when eurozone rates might rise, given ECB President Jean-Claude Trichet's recent warnings on the need to tackle inflationary pressures. Accelerating inflation and funding problems for peripheral banks are set to top the agenda at the meeting.
Trichet's news conference is due to start at 1330 GMT. "The future trajectory of the euro/dollar rests on Trichet's shoulders," said Kathleen Brooks, research director at Forex.com. "If he picks up where he left off back in January and highlights the upward risks to inflation that would be euro positive and we could see euro at $1.40 in the coming days."
She added that if, on the other hand, he argued the spike in inflation and risks to growth were temporary, the euro could come under pressure. The single currency shed 0.4 percent on the day to trade at $1.3753, moving away from a 12-week high of $1.3862 hit on Wednesday though still more than 7 percent above a four-month trough of $1.2860 hit less than a month ago.
Traders said offers were lined up at $1.3830 with talk of an options barrier at $1.3900. Ahead of $1.40, the euro faces resistance around $1.3950, marking the 76.4 percent retracement of its two-month decline to early January as well as its 200-week moving average.
The dollar index was up 0.2 percent at 77.329, not far above a 12-week low of 76.881. Stephan Maier, currency strategist at Unicredit, said investors may be taking a more neutral position on the dollar after its hefty losses earlier in the week, given the political turmoil in Egypt and the risks of unrest spreading to other Middle East countries. Some analysts said expectations of hawkish ECB rhetoric may have built too much, leaving room for disappointment and posing downside risks for the euro.