(Reuters) - The euro inched up on Thursday on the back of improved global appetite for risk, but gains were likely to be checked by nerves over the level of participation by private creditors in a Greek debt swap crucial to its second international bailout.
The euro and the dollar were both higher against the yen after Japan's current account swung to a record deficit for the first time in three years in January, driving some short-term players to sell the Japanese currency.
In Europe, indications are major banks and pension funds are likely to take part in the Greek deal, easing concerns about a chaotic default. But some hedge funds and Greek pension funds are still holding out, injecting uncertainty before the deadline expires later in the day.
Greece aims to persuade 90 percent of creditors to take part in the bond swap. With two-thirds acceptance or more it may be able to trigger collective action clauses (CAC) to force bondholders to accept losses, an event that would have knock-on effects for banks but has largely been priced-in.
"The Greek PSI deal is clearly a big risk event and indications are the participation will not reach the desired level," said Raghav Subbarao, currency analyst at Barcaps.
"That will likely lead to retroactive CAC and trigger CDS. The net exposure for CDS may be manageable, but this will weigh on the euro in the short term." He expected the euro to maintain a downward trend and drop to $1.26 (80 pence) in the next six months.
The euro was marginally higher at $1.3170 (832 pence), with traders citing buying by a central bank reserve manager in early European trade. Offers to sell the euro are said to be building around the 100-hour moving average of $1.3185 (8331 pence) and at $1.3200 (83 pence) with most investors looking to sell into a bounce to $1.32 (83 pence).
Analysts said that a smooth resolution of the Greek debt swap deal, which is key for a 130 billion euro bailout package for the troubled nation, could give the single currency a short term reprieve, but any move back to recent highs of $1.3486 (8521 pence) was unlikely.
Dealers say the softer tone on the euro will be backed up by the absence of any sign from the European Central Bank on Thursday that it could rein in the huge stimulus it has given the euro zone economy.
With most of the region, except Germany, on the brink of recession, some traders maintain there is still an outside chance that the bank may consider cutting interest rates later in the year; most economists say that is now off the table.
The ECB is widely expected to keep rates on hold on Thursday, making President Mario Draghi's news conference following the decision the day's key event.
YEN UNDER PRESSURE
The Bank of England will also announce a rate decision later on Thursday. It is expected to stick to its ultra-easy policy with focus shifting to whether it will implement another round of quantitative easing in May.
The U.S. dollar was pegged back by a Wall Street Journal report suggesting Fed officials were considering buying longer-dated bonds and sterilising the money flow by draining funds from the banking system.
Nevertheless, it gained against the yen after Japanese current account deficit numbers, climbing 0.4 percent to 81.48 with traders citing offers around 81.55 yen and option-related selling at 81.95-82.00 yen.
"The data held no real surprises but still managed to encourage some yen selling," said Derek Halpenny, European head of global currency research at Bank of Tokyo Mitsubishi.
The greenback has gained nearly 6.5 percent against the yen since the end of January, before getting stuck in the band of 81.87-80.50, formed by this year's high and the 23.6 percent retracement of its February rise.
Meanwhile, hopes of a smooth passage of the Greek debt swap deal supported riskier currencies and stocks. The Aussie gained 0.3 percent to $1.0615 (6707 pence) in line with solid gains posted across global stock markets, erasing initial losses following surprisingly soft Australian jobs data.
The New Zealand dollar was also 0.8 percent higher at $0.8222 (5195 pence) shrugging off the central bank's dovish monetary statement. The bank held its cash rate at a record low as expected and implied in its forecasts it will stay that way for the rest of the year.
