Dollar slips, euro gains ahead of ECB announcement

The dollar slipped against a basket of major currencies for a second straight day on Wednesday but still managed to hit a fresh 20-year high against the yen, while the euro strengthened ahead of a policy announcement by the European Central Bank.

The yen weakened to hit 134.47 per dollar, its softest since 27 February 2002, and the euro hit its highest level against the safe-haven yen since 5 January 2015, as the Bank of Japan remains one of the few global central banks to maintain a dovish stance while others have adopted tightening policies of hiking interest rates to combat inflation.

The European Central Bank (ECB) is expected to take a hawkish stance, with interest rate hikes to begin in July as traders price in 75 basis points of hikes by September. 

"Right now we are seeing a market, we are really playing tug-of-war here," said Edward Moya, senior market analyst at Oanda in New York.

"We are about to get some hawkishness from the ECB, they are finally going to be tackling inflation, and probably a few more hot inflation reports in the U.S., so we are still going to see calls for the Fed to remain aggressive with tightening. ... That just will probably mean FX is going to be pretty choppy over these next few months."

The yen has now fallen for 10 straight trading sessions against the euro, its longest losing streak in eight months.

The dollar index fell 0.059% to 102.350, with the euro up 0.29% to $1.073.

The euro rose rose 1.23% against the yen to 143.670.

Following the ECB announcement on Thursday, investors will get a read on U.S. inflation on Friday in the form of the May consumer price index (CPI). Expectations call for a year-over-year inflation increase of 8.3%, unchanged from April. 

The data is highly unlikely to alter the Fed's current rate hike path. Traders have completely priced in a rate hike of at least 50 basis points, according to CME's FedWatch Tool.

Japanese policymakers, however, stood by their stance supporting a weaker yen on Wednesday, saying it is a positive for the economy. 

The Japanese yen weakened 0.95% versus the greenback at 133.87 per dollar, while Sterling was last trading at $1.2549, down 0.31% on the day.

The pound was down against the dollar as political risks and fears of a slowing economy weighed on sterling in the wake of a confidence vote on British Prime Minister Boris Johnson on Monday.

In cryptocurrencies, bitcoin last fell 3.09% to $30,361.18.