* Sterling trades near 2-week high
* Polls suggest PM May's Conservatives will win majority
* Euro steady ahead of ECB policy announcement
* Dollar falters vs yen, languishes near 7-week lows
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh#
* Graphic on UK election: tmsnrt.rs/2q7tC48
By Ritvik Carvalho
LONDON, June 8 The euro steadied near six-month
highs on Thursday ahead of a European Central Bank policy
announcement while sterling set a two-week high as markets
priced in a victory for Britain's Conservative Party in national
The euro has risen 10 percent against the dollar in the past
five months, partly due to the greenback's weakness but also on
the view that rising inflation would prompt the ECB to raise
interest rates in early 2018.
But reports on Wednesday that the ECB would cut its
inflation forecasts have dampened expectations of the bank's
language veering towards a pullback of its stimulus programme,
also known as quantitative easing (QE), later this year.
The ECB is widely expected to keep policy unchanged on
Thursday, including its 2.3 trillion euro ($2.59 trillion)
Valentin Marinov, head of FX strategy at Credit Agricole
said that a downward revision to the ECB's core inflation path
could dash hopes of a QE taper announcement as soon as
September, adding he expected the ECB to deliver a relatively
dovish message compared with expectations.
"On the whole, a return of the ECB’s cautious rhetoric on
the euro, plus a revision of the inflation projections and the
dovish language that Draghi will likely use even when he's
conveying a fairly constructive assessment of the improving euro
zone outlook could weigh on the single currency," he said.
By 0806 GMT, the euro was up less than 0.1 percent at
Sterling traded at $1.2969, staying near a peak of
$1.2978 hit in morning European trade, its highest level since
Opinion polls on Wednesday showed that Prime Minister
Theresa May is on course to increase her majority in parliament
in Thursday's election, suggesting her gamble to call the vote
to strengthen her position in Brexit negotiations will pay off.
"Markets appear to be pricing in a Conservative Party
majority victory," said Jasslyn Yeo, market strategist in
Singapore for J.P. Morgan Asset Management.
If the Conservative Party gains a decisive majority of more
than 50 seats, that would probably be seen as a positive outcome
for sterling, Yeo said.
"However, we still see much uncertainty surrounding the UK
election, where a higher turnout vote of young people could
potentially turn the tables on investors," she added.
Investors will closely monitor U.S. Senate testimony by
former FBI Director James Comey later on Thursday, worried his
testimony could dampen already flagging momentum for President
Trump's agenda of rolling back regulation and overhauling the
In written testimony released on Wednesday, Comey - who was
abruptly fired by Trump in May - said that the president asked
him to drop an investigation of former National Security Adviser
Michael Flynn as part of a probe into Russia's alleged meddling
in the 2016 presidential election.
The dollar slipped 0.3 percent to 109.72 yen,
edging back in the direction of Wednesday's low of 109.115 yen,
its lowest level in about seven weeks.
Traders said the yen edged higher after Bloomberg reported
on Thursday, citing unnamed sources, that the Bank of Japan was
re-calibrating its communications to acknowledge that it is
thinking about how to handle a future exit from monetary
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Ritvik Carvalho; additional reporting by Masayuki