* Kuroda comments drive yen to highs; dollar recovers
* Euro pegged back ahead of European election
* Sterling index at 5-1/2-yr high after BoE minutes, UK data (Adds quote, updates prices, changes byline, dateline; previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 21 (Reuters) - The euro declined for a second session against the dollar on Wednesday, weighed by expectations of further policy easing by the European Central Bank and political uncertainty ahead of the European Parliamentary elections later this week.
The dollar, meanwhile, tumbled to its lowest in more than three months versus the yen in European trading, hurt by optimistic comments about the economy from Bank of Japan Governor Haruhiko Kuroda who gave no hint of further monetary easing in the near term.
The biggest volumes though were seen in the pound, which rose to a 5-1/2 year high against a basket of currencies, after a surge in retail sales last month and signs some Bank of England policymakers were leaning towards a rate hike.
In mid-morning New York trading, the euro fell to one-week lows against the dollar of $1.3652 and was last at $1.3661, down 0.3 percent on the day.
“The trend of the dollar being supported against the euro is due to expectations about the ECB side of things,” said John Doyle, director of markets at Tempus Consulting in Washington.
“Expectations about additional easing measures in June have increased since the ECB’s last meeting. And the European elections are also a factor in the euro’s weakness.”
Votes for anti-austerity, euro-sceptic parties look set to increase.
The dollar fell to a 3-1/2-month low against the yen of 100.805 yen in London trading after the BoJ’s Kuroda said a Japanese economic recovery was on track after the sales tax hike in April. The tax hike was expected to curb consumer demand and put pressure on the BoJ to ease policy in coming months.
But Kuroda gave no clues about further easing. He said the massive asset purchase program launched last year was still working and having its desired effect.
The BoJ also raised its assessment on capital expenditure and Kuroda reiterated Japan was on course to meet the bank’s 2 percent inflation target in about a year. All of which meant the yen is likely to be supported in the near term.
The dollar recovered in New York trading from losses against the yen to trade higher at 101.54.
Federal Reserve Chair Janet Yellen is scheduled to give a commencement address and receive an honorary degree in New York later in the day.
Investors awaited the Fed’s April policy meeting’s minutes, due to be released later in the day. While the Fed is not expected to raise rates until at least the middle of next year, investors will be keen to learn whether officials discussed the myriad issues relating to policy normalisation.
In the options market, one-month dollar/yen implied volatility - or the expected price swing - rose to its highest in three weeks, highlighting expectations that the pair is likely to see a new trading range in coming weeks. (Additional reporting by Anirban Nag in London; Editing by Bernadette Baum)