The dollar index against a basket of six major currencies was last up nearly 0.2 per cent at 94.93. It struck a 10-month low of 94.476 on Tuesday.
The ECB meeting is expected to lay the groundwork for an autumn policy shift emphasising improved growth while trying to temper expectations after previously setting off a mini-tantrum in financial markets.
“There is a bit of a cautious positioning ahead of the ECB today,” said Chang Wei Liang, FX strategist at Mizuho Bank.
“In FX markets, the USD found a footing against Asian currencies, with investors perhaps watching ECB. Another hawkish turn could negatively impact higher-yielding Asian FX.”
The Bank of Japan, however, was far from hawkish on Thursday as it kept monetary policy steady and pushed back the timing for achieving its inflation target, reinforcing expectations it will lag well behind other major central banks in scaling back its massive stimulus programme.
The Thai baht edged down against the dollar ahead of June trade data, while the Indian rupee declined on the day after three successive gaining sessions this week.
China’s yuan weakened after the People’s Bank of China set the midpoint rate at 6.7464 per dollar, slightly below the Wednesday’s nine-month high guidance of 6.7451.
While most Asian currencies fell as investors waited for hints from the European Central Bank on tapering its stimulus campaign, some analysts believe the ECB adopting a hawkish stance could benefit Asian currencies.
“We do not believe possibility of a withdrawal of euro zone area stimulus is likely to hurt Asian assets as any ECB scale-back is likely to be very gradual,” said Tariq Ali, investment strategist at Standard Chartered Bank.
“Moreover, markets may also see this as an affirmation of the improving global growth outlook, which is positive for Asian assets.”
The Thai baht edged down against the dollar ahead of June trade data. A Reuters poll found customs-cleared annual exports were expected to rise for a fourth straight month in June but at a slower pace.
Technical indicators such as the relative strength index (RSI) showed the Thai baht near overbought levels.
“USD/THB has been oversold with rising risks of technical corrections,” said a Scotiabank report.
The baht has risen nearly 6.5 per cent against the US dollar so far this year, the most in Southeast Asia.
Thailand’s economic growth has not yet been affected by a strong baht, the finance minister said on Thursday, as the currency hovered near 26-month highs against the dollar.
The rupiah was down 0.08 per cent against the dollar at 13,327 per dollar, ahead of its central bank policy rate decision.
“We do not expect the BI to adjust its policy rate to keep rates accommodative to support growth despite elevated inflation.” said a Maybank report.
Indonesia’s annual inflation accelerated slightly to 4.37 per cent in June.
Analysts said foreign inflows are expected to continue into Indonesian bonds, supporting the rupiah.
Indonesia’s 10-year government bond yields about 6.9 per cent, the highest among Asian government bonds.