Forex-Euro bounces back as rate cut hopes ease

The euro strengthened against the dollar and yen on Thursday after tough talk on inflation from European Central Bank policymaker Axel Weber dampened expectations of a possible near-term interest rate cut.

The yen retreated on the back of the bounce in the euro and as European stocks extended their rally, after earlier gaining on lingering concerns over the health of the global economy.

"For the time being, the ECB are maintaining a very hawkish line so no signs of any rate cut any time soon," said Chris Turner, head of FX strategy at ING.

"You're then left with sharply lower U.S. rates, stable European rates and with equities doing quite well at the moment ... the market is just going to focus on the dollar bearish story."

Weber said the U.S. Federal Reserve's surprise decision to cut interest rates by 75 basis points this week hasn't shifted the ECB focus on euro zone inflation, dampening mounting expectations that it too will have to cut rates soon.

The euro climbed 0.3 percent to $1.4683 by 1206 GMT and was also up 0.3 percent versus the Japanese currency at 156.60 yen , well above an early low of 154.86 yen.

The dollar was steady against the Japanese currency at 106.65 yen , off early lows.