May 8, 2014 / 2:20 PM / 4 years ago

FOREX-Dollar gains against euro as Draghi signals action

* US dollar gains against euro on Draghi comments

* Euro earlier rose to a 2-1/2 year high against the US dollar

* Dollar index rises 0.15 percent (Updates prices, adds comments, changes byline, dateline, previous LONDON)

By Karen Brettell

NEW YORK, May 8 (Reuters) - The dollar gained against the euro on Thursday after European Central Bank President Mario Draghi said the bank may act to stem falling inflation at its June meeting, erasing earlier losses that saw the dollar fall to a 2-1/2 year low.

Draghi said that the ECB’s governing council is comfortable with the bank acting in June, depending on staff projections.

Many economists expect a downward revision in the ECB staff’s inflation forecasts, which could open the way for more stimulus such as an interest rate cut or new liquidity injections.

“They signaled through the press conference that a rate cut is likely in June, that has capped the move higher in the euro,” said Martin Schwerdtfeger, a foreign exchange strategist at TD Securities in Toronto, Canada.

The euro was last down 0.26 percent against the dollar at $1.3874. It earlier rose to $1.3992, the highest since November 2011.

Investors were also focused on testimony from Federal Reserve Chair Janet Yellen on the economic outlook before the Senate Budget Committee.

On Wednesday, Yellen said a slumping housing market and geopolitical tensions risk undermining the U.S. economy and bear close watching by the U.S. central bank.

The dollar was up 0.14 percent against the Japanese yen at 101.75. The dollar was down 0.16 percent against the Swiss franc to trade at 0.8778 francs.

The U.S. dollar index, which measures the dollar against six major currencies, gained 0.15 percent to 79.32.

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