The euro slipped against a broadly stronger dollar on Tuesday, amid expectations that the monetary policy message emerging from the ECB at a central bank conference this week will be a cautious one.
Friday's speech by European Central Bank President Mario Draghi is among the set-piece events at the Jackson Hole symposium, where remarks by his Federal Reserve counterpart Janet Yellen on the same day will be the main focus.
“The euro has become slightly vulnerable after the recent rise and unless Draghi comes out and says anything significant, we expect the currency to remain under pressure,” said Piotr Matys, an FX strategist at Rabobank in London.
Draghi will refrain from delivering a new policy message, two sources familiar with the situation told Reuters last week, tempering any expectations for the ECB to start charting the course out of its quantitative easing (QE) stimulus programme.
Since hitting a 2-1/2 year high near $1.1910 in early August, the common currency has lost some steam, as investors took on board the cautious tone struck by ECB policymakers revealed in the minutes of their July meeting.
Having gained half a per cent on Monday for its biggest single-day rise against the dollar so far this month, it shed 0.2 per cent to $1.1790 on Tuesday.
Analysts said Draghi would be wary of saying anything that might push the euro above the $1.20 line, a level considered sensitive by euro zone policymakers.
“It is difficult to see President Draghi exceeding the intrinsic QE taper expectations priced into the euro, while he could choose to repeat the Governing Councils concerns over currency markets front-running ECB policy normalisation,” Viraj Patel, an FX strategist at ING in London said.
The market remained supportive for the euro against other major currencies, however, and it extended gains against the Swiss franc and the pound.