* Euro steady ahead of ECB policy meeting
* Sterling trades near 2-week high before UK election
* Dollar recovers from 7-week low vs yen
SINGAPORE, June 8 (Reuters) - The euro held steady on Thursday ahead of the European Central Bank’s policy announcement, while sterling was supported by expectations that Prime Minister Theresa May’s party will win a majority in Britain’s election.
The common currency was fetching $1.1251, having regained some footing after slipping to as low as $1.1204 on Wednesday, pressured by reports suggesting the ECB would lower its inflation targets.
Bloomberg, citing unnamed euro zone officials, said the central bank was preparing to lower its annual inflation forecast for the next three years to 1.5 percent, from 1.7 percent, 1.6 percent and 1.7 percent, respectively.
The new estimate which is subject to approval by the Governing Council, would signal a softer line than many in currency and bond markets have been expecting. The ECB declined to comment.
The euro later pared losses after a Reuters report cited sources as saying the ECB is likely to nudge up its forecasts for economic growth in the euro zone even as it trims its inflation estimates.
“To me, the risk for the euro is tilted toward the upside, given that the market already traded yesterday based on a dovish image (of the ECB),” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
The euro is likely to be bought if the ECB were to keep its inflation estimates unchanged, Okagawa added.
The ECB is widely expected to keep its policy unchanged on Thursday, including its 2.3 trillion euro bond buying programme and pledge to keep rates low.
Sterling held steady at $1.2961, trading near Wednesday’s peak of $1.2970, its highest level since May 25.
The pound gained 0.4 percent on Wednesday, with investors increasingly taking the view that May’s party will win a majority in the election on Thursday.
Opinion polls showed on Wednesday that May is on course to increase her majority in parliament in the election, suggesting her gamble to call the vote to bolster her position in Brexit negotiations will pay off.
Traders also remained watchful ahead of Thursday’s U.S. Senate testimony by James Comey, the former Federal Bureau of Investigation fired by President Donald Trump in May.
Comey accused Trump on Wednesday of trying to get him to water down the FBI probe into Russia’s alleged interference in the 2016 U.S. presidential election, according to testimony posted on the Senate Intelligence Committee’s website.
The dollar index, which tracks the greenback against six major rivals, held steady at 96.774.
Against the yen, the dollar edged up 0.1 percent to 109.94 yen, having pulled up from Wednesday’s low of 109.115 yen, the greenback’s weakest level since April 21.
The yen showed little reaction to reports of missile launches by North Korea.
North Korea fired what appeared to be several land-to-ship missiles off its east coast on Thursday, South Korea’s military said, the latest in a fast-paced series of missile tests defying world pressure to rein in its weapons programme. (Reporting by Masayuki Kitano; Editing by Shri Navaratnam)