Euro Retreats As ECB Forecasters Cut Inflation Outlook

The euro trimmed some of its early gains against its major counterparts in the early European session on Friday, after the European Central Bank's economists downgraded inflation expectations for this year and the next two years, below the central bank's goal of close to 2 percent.

The latest ECB survey of professional forecasters downgraded inflation outlook to 1.5 percent this year, 1.4 percent in 2018, and 1.6 percent in 2019. That represents a downward revision of 0.1 percentage points for all three years. Economists had forecast inflation to hit 1.6 percent in 2017, 1.5 percent in 2018 and 1.7 percent in 2019 in the April survey.

"To two decimal places, however, these revisions were actually much smaller across rounding thresholds," the ECB said.

The longer-term expectation for five years was unchanged at 1.8 percent, at or just below the ECB's target of inflation 'close to but below' 2 percent.

The balance of risks to longer-term expectations remains to the downside, the bank said.

European markets fell as investors digested comments from ECB President Mario Draghi, who hinted that discussions to potential changes to the central bank's quantitative easing would take place in the autumn.

The euro held steady against its major rivals in the Asian session, with the exception of the greenback.

The euro eased to 1.1636 against the greenback, from near a 2-year high of 1.1677 hit at 2:45 am ET. The euro-greenback pair is likely to target support around the 1.15 level.

The euro edged down to 129.94 against the Japanese yen, off early 9-day high of 130.50. If the euro-yen pair extends decline, it may locate 128.00 as the next support level.

Pulling away from an early 8-1/2-month high of 0.8991 against the pound, the euro ticked down to 0.8948. The next possible support for the euro-pound pair is likely seen around the 0.88 area.

Data from the Office for National Statistics showed that the UK budget deficit increased in June.

Public sector net borrowing, excluding interventions increased by GBP 2.0 billion from previous year to GBP 6.9 billion in June. The expected level was GBP 4.9 billion.

The single currency retreated to 1.1060 against the Swiss franc, after having advanced to 1.1089 at 2:45 am ET. On the downside, the euro may challenge support around the 1.095 region.

Data from the Swiss National Bank showed that Switzerland's money supply growth accelerated for the third straight month in June.

The monetary aggregate M3 grew 4.1 percent year-on-year in June, faster than the 3.9 percent increase seen in May.

The euro reversed from its early high of 1.5723 against the kiwi, 3-day high of 1.4776 against the aussie and a 9-day high of 1.4683 against the loonie, ticking down to 1.5638, 1.4684 and 1.4631, respectively. Continuation of the euro's downtrend may see it challenging support around 1.55 versus the kiwi, 1.44 against the aussie and 1.44 against the loonie, respectively.

Looking ahead, Canada CPI for June and retail sales for May are due in the New York session.