Euro dips in London

The euro fell against the dollar on Wednesday, hurt by soft German data and selling off against the British pound after the Bank of England gave no indication it would provide further stimulus. However, the single currency's losses, which followed three days of gains, were likely to be limited with markets expecting the European Central Bank will ultimately step in to lower Spain and Italy's borrowing costs.
The euro was down 0.3 percent at $1.2365, turning lower after gains that took it to a one-month high of $1.2444 on Monday. It dropped past reported stop-loss orders at $1.2350, before recovering slightly. It was expected to hold above chart support at $1.2342, this week's low, and its 100-hour moving average around $1.2338.
"The euro has been chopping around a bit today, with German data weak and also the BoE report that saw a bit of a short squeeze in sterling," said Chris Turner, head of FX strategy at ING. Sterling rose against the euro after BoE Governor Mervyn King appeared cautious about future interest rate cuts, surprising some investors.
Earlier, the central bank slashed inflation and growth forecasts in its Quarterly Inflation Report as the euro zone crisis continued to take its toll. German data showed industrial output fell slightly more than expected in June. Separately German imports fell sharply in the three months to June while exports also dropped.
Figures on Tuesday showed Italy shrank further into recession in the second quarter while German industry orders fell more than forecast in June. "The euro has had a couple of 'up' days and this sell-off in risk comes after weaker German and Italian numbers," said Gavin Friend, currency strategist at National Bank of Australia.
However, the market was "certainly not underestimating the events of the last week" and that the euro was more likely to move higher. NAB sees it at $1.26 by the end of September. The euro had rallied, in tandem with stock markets and riskier currencies, since ECB President Mario Draghi said last week he was determined to save the euro from disintegration and warned markets not to bet against the euro.
Market players have so far been unwilling to test the ECB's resolve and some banks have forecast the euro will push higher over the coming weeks. Sterling reversed earlier losses against the dollar to hit a session high of $1.5672, up 0.2 percent on the day. Traders had sold the pound in recent days on expectations that downbeat BoE forecasts in the quarterly Inflation Report would lead speculators to position for more monetary easing.
The yen inched higher as global stock markets came under pressure and investors sought safe-haven assets and currencies. The euro fell 0.7 percent to 96.75 yen while the dollar was down 0.3 percent at 78.32 yen. The dollar has stayed in a range between 77.90 and 78.80 yen for the past two weeks. But analysts said expectations of more US monetary easing may hurt the dollar.