Euro trims declines against U.S. dollar after Spanish inflation surge

By Joice Alves

LONDON (Reuters) - The euro steadied on Wednesday after falling to a six-day low, reacting to the release of conflicting inflation data in Germany and Spain that created a difficult backdrop for European Central Bank policymaking.

The European common single currency decline in early London trading after data showed June prices in the German state of North Rhine–Westphalia (NRW) had been 0.1% lower than in May.

But the euro trimmed those losses, flattening on the day, after data showed Spanish 12-month inflation had risen to 10.2% in June, up from 8.7% in May and surpassing 10% for the first time since April 1985.

"Clearly the strength of Spanish CPI inflation data has undone the pressure on the euro," said Jane Foley, head of FX strategy at Rabobank in London. That came after the -0.1% drop in Germany's NRW June CPI number led "the market to question the hawkishness of the ECB going forward," she added.

Investors were watching for national inflation data for Germany due at 1200 GMT, as well as a panel at the ECB Forum in Sintra, Portugal, with three major central bankers speaking.

ECB President Christine Lagarde, U.S. Federal Reserve Chairman Jerome Powell and Bank of England Governor Andrew Bailey will speak at 1300 GMT.

On Tuesday, Lagarde offered no fresh insight on the path for European interest rates at the ECB's annual forum.

The ECB is widely expected to raise interest rates in July for the first time in a decade, following its global peers, to try to cool accelerating inflation, though economists are divided on the magnitude of any hike amid risks that a rising cost of borrowing could damage more growth prospects.

Easing some of the ECB worries about the economy, a separate set of data on Wednesday showed euro zone economic sentiment soured by slightly less than expected in June as consumers and retail trade became more downbeat but spirits among industrial and services sectors improved.

The euro flattened against the dollar to $1.0525 at 1105 GMT after dipping as low as $1.0486 earlier.

The dollar index , which measures the greenback against six counterparts, ticked up after rising to a six-day high with investors seeking safety in U.S. assets as stocks declined globally due to the mounting risk of a recession.

The safe-haven dollar index edged 0.02% higher to 104.5, but stayed below a two-decade high struck two weeks ago.

Another safe haven, the Swiss franc, rose 0.65% versus the euro to 1.0001, its highest level against the single currency since March.

European equities slid, following heavy Wall Street losses on Tuesday, after a steep drop in U.S. consumer confidence stoked worries about an economic slowdown at a time when the U.S. Fed is rushing to raise interest rates to corral inflation.