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TOKYO, July 21 (Reuters) – The euro rebounded on Thursday, rising back toward a two-week high to the dollar, as investors braced for the European Central Bank’s first interest-rate increase since 2011 and the scheduled reopening of a key Russian gas pipeline later in the day.

Meanwhile, the yen shrugged off the Bank of Japan’s as-expected decision to stick with ultra-easy policy settings.

The euro gained 0.3% to USD 1.02095, clawing back part of a 0.39% retreat on Wednesday, when it also hit an intraday peak of USD 1.0273, the highest since July 6.

The euro had enjoyed three sessions of strong gains this week on expectations the ECB might deliver a big 50 basis-point rate hike and a Reuters report that a key Russian gas pipeline would reopen on time following a 10-day maintenance shutdown.

The European Union asked member states on Wednesday to cut gas usage by 15% until March as an emergency step after President Vladimir Putin warned that Russian supplies sent via the biggest pipeline to Europe could be reduced further and might even stop.

Markets are split on whether ECB policymakers will deliver a previously telegraphed 25 basis-point increase or a half-point rise to try to wrestle down runaway inflation. The monetary authority is also likely to provide more details of a new tool aimed at controlling outsized rises in bond yields on Europe’s periphery.

The outlook for the region has been further complicated by the looming collapse of the Italian government.

National Australia Bank sees the ECB meeting having mixed implications for the euro.

“Italy’s political uncertainty complicates the ECB plans to deliver details on its new anti-fragmentation tool, especially regarding the conditions for the tool to be triggered,” and a lack of clarity is likely to drag on the euro, NAB currency strategist Rodrigo Catril wrote in a client note.

At the same time, NAB expects a half-point hike and guidance for another half-point increase in September “with the Bank aiming to front-load rate hikes ahead of weaker conditions later in 2022 and into 2023, when room to move may be more limited,” Catril said.

In Japan, the central bank continued to buck the global monetary tightening trend by keeping stimulus settings steady, even as it raised its inflation forecast.

The dollar inched up 0.05% to 138.34 yen, edging back in the direction of the 24-year high at 139.38 seen one week ago.

Sterling continued to consolidate below USD 1.20, last trading little changed at USD 1.1984, as the field of candidates vying to be Britain’s next prime minister shrank to two, but a winner is not expected to be announced until Sept. 5.

The Australian dollar AUD=D3 added 0.08% to USD 0.6895, while the New Zealand dollar slipped 0.1% to USD 0.6224.

(Reporting by Kevin Buckland; Editing by Sonali Desai)

NEW YORK, July 20 (Reuters) – The US dollar rose against the euro on Wednesday in a choppy session, but its gains were capped as traders were hesitant to drive big moves ahead of a crucial European Central Bank policy decision on Thursday.

The single currency has rallied about 2% in the last three trading sessions on expectations the ECB might deliver a big 50-bps rate hike and a Reuters report that a key Russian gas pipeline would reopen on time after maintenance.

“The euro popped yesterday on the slight possibility that the ECB would consider a 50 basis point hike,” said John Doyle, vice president of dealing and trading at Monex USA.

“I think expectations of that have waned a bit this morning especially with the energy crisis back in the headlines.”

The European Union told member states on Wednesday to cut gas usage by 15% until March as an emergency step after President Vladimir Putin warned that Russian supplies sent via the biggest pipeline to Europe could be reduced further and might even stop.

Both events – the ECB meeting and the reopening of the Nord Stream 1 conduit after a 10-day shutdown – are due on Thursday, leaving markets on tenterhooks.

“Our expectation is the ECB will only hike 25 bps this month. But the chance of a upside surprise will keep EUR/USD choppy until the decision is released,” Doyle said.

The dollar was about 0.52% lower against the euro at USD 1.01675.

The common currency found little relief from selling pressure after Italian Prime Minister Mario Draghi won a confidence motion in the upper house Senate on Wednesday, but three main coalition parties refused to take part in the vote, effectively torpedoing his administration.

Against a basket of currencies, the dollar was 0.5% higher at 107.15, not far from the two-decade high of 109.29 touched last week.

The dollar was about 0.1% lower against the yen at 138.29 yen. The Bank of Japan is expected to stick to its dovish stance at its Thursday meeting.

Sterling weakened against the dollar, as data showed British inflation climbed to its highest rate in 40 years, but only slightly above forecast. Against the dollar, the pound was 0.3% lower at USD 1.1961.

The Canadian dollar slipped about 0.2% against the US dollar after data showed inflation in Canada picked up speed again in June, though the gain missed forecasts.

In cryptocurrencies, bitcoin was about 1.67% higher at USD 23,795.2, on pace for its third straight day of gains, as traders bet the recent bout of weakness that had engulfed the market was over.

(Reporting by Saqib Iqbal Ahmed; Editing by Alison Williams and Richard Chang)

SINGAPORE, July 20 (Reuters) – The US dollar retreated further on Wednesday as the euro extended its overnight bounce on relief Europe might avoid the worst fears concerning energy shortages, and on the chance the European Central Bank may deliver a more aggressive rate hike.

Russian gas flows via the Nord Stream 1 pipeline are seen restarting on time on Thursday after the completion of scheduled maintenance, Reuters reported on Tuesday.

The euro tacked on 0.25% to USD 1.0245, having risen 0.75% the previous day, its strongest daily gain in a month.

Aiding sentiment was news that the ECB is considering raising interest rates by a larger-than-expected 50 basis points at their meeting on Thursday.

“If we do see Russian gas flows resume tomorrow, that will be good news for the euro/dollar and in the near term, euro can get a little boost and get away further from parity,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“But I am still worried about the euro/dollar, I think downsides still persist … the potential hawkish pivot from the ECB may not be able to give sustained support.”

The euro has lost about 2.3% since the beginning of July, and broke parity with the dollar for the first time in two decades last week following a red-hot US inflation print and fears about a sharp economic downturn in the eurozone.

Other major currencies similarly rallied on the back of the weakening greenback, and as central banks around the world become more hawkish in their efforts to tame soaring inflation.

The US dollar index measure against a basket of key currencies was down 0.14% to 106.52, well off its two-decade peak of 109.29 last week.

The US currency’s retreat has also coincided with reduced expectations of a supersized 100-basis-point rate hike at next week’s Federal Reserve policy review.

The Aussie was up 0.4% at USD 0.6925, after rising 1.3% overnight, also the largest in a month.

Ahead of the Fed’s meeting next week, markets are pricing in a 23.2% chance of a 100 bp rate hike, with expectations of the jumbo rate increase easing after policymakers were quick to pour cold water on it.

Minutes of the Reserve Bank of Australia’s (RBA) July policy meeting out the day earlier showed that the central bank sees a need for more policy tightening to curb inflation.

Earlier on Wednesday, RBA Governor Philip Lowe also suggested that rates could at least double from current low levels.

Sterling likewise advanced 0.28% to USD 1.2031.

Bank of England Governor Andrew Bailey said on Tuesday that a 50-basis-point rate hike will be “among the choices on the table” at the BoE’s next meeting.

Conversely, the Japanese yen remained an outlier on Wednesday morning, and last traded 138.155 per dollar, as the Bank of Japan seems determined to stand by its dovish stance.

“Sticking to its dovish guns will entail sharpening policy trade-offs for the BOJ. The most pressing of which, is the sharp drop in the JPY; which has fallen a gut-wrenching 20-21% since the September FOMC,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.

Over in the cryptoverse, Bitcoin was steady at USD 23,300, just off a five-week high hit the day before.

(Reporting by Rae Wee in Singapore and Alun John in Hong Kong; Editing by Shri Navaratnam)