The euro steadied versus the yen on Thursday after the European Central Bank held rates at 4 percent as expected, as the market awaited a post-decision news conference with ECB President Jean-Claude Trichet.
Economists polled by Reuters last week had given a median 40 percent chance of a September ECB hike, slashed from 90 percent a month ago as a result of recent turbulence in credit markets.
The focus is now on whether Trichet, who speaks at 8:30 a.m. (1230 GMT), signals that the bank is still ready to raise rates once markets quieten down.
This is no real surprise. It was wise for the ECB to opt to wait and see in the current market context, even though they had vigilance language in place since August, said Audrey Childe-Freeman, European economist at CIBC World Markets.
Clearly, markets will be looking to see what Trichet has to say at the news conference and whether he keeps the rate hike option alive by re-iterating the vigilance language or whether he drops that, she added.
By 1158 GMT the euro was up against a broadly softer dollar at $1.3672. The greenback had been knocked on Wednesday by weak data from the U.S. housing market.
Investors will also look to a number of speeches by U.S. policy makers and to the Institute for Supply Management's non-manufacturing index for August later in the session.
Sterling was steady at $2.0196 after the Bank of England held rates at 5.75 percent as expected, but broke with tradition to issue a statement, saying it had discussed the recent credit market disruptions.
It's a combination of the fact that they felt it necessarily to say anything at all, and also there was some hope that they will announce some liquidity boosting measures and there wasn't, so that's sterling negative, said Adam Cole, senior currency strategist at RBC Capital Markets.
BRIEF BOOST FOR THE YEN
The yen, which trades as a proxy for the tightly controlled Chinese yuan, erased earlier losses versus the euro and the dollar after China's central bank raised commercial banks' reserve requirements for the seventh time this year.
A reversal in equity markets also helped the low-yielding yen, which tends to do well at times of risk aversion.
It was up 0.2 percent versus the dollar at 114.92 yen and slightly firmer against the euro at 157.15 yen.
It's what you'd expect in terms of a policy move from China and we are seeing a knee-jerk reaction on the yen. That tends to be what happens when you get some kind of policy tightening move from Chinese authorities, said Derek Halpenny, senior currency economist at BTM-UFJ.
But if you look back on previous times, when there has been a policy announcement even the big change in the currency band, the period of yen appreciation was usually brief, he added.
The high yielding Australian dollar added 0.3 percent versus the U.S. currency after strong jobs data strengthened the case for further Reserve Bank of Australia rate hikes.
The move also dragged up the New Zealand dollar.