* Euro unmoved by ECB decision; focus on Draghi’s comments
* FX markets cautious about outcome of Trump-Juncker summit
* Chinese yuan rallies half a percent
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, July 26 (Reuters) - The euro held below a three-day high on Thursday after the European Central Bank, as expected, kept its policy rate unchanged and investors waited to see whether there are any further hints on the pace of policy normalisation.
The ECB’s decision keeps it on track to end its vast bond purchases by the close of the year and to keep rates record low at least through next summer.
Attention now turns to ECB President Mario Draghi’s news conference at 1230 GMT for signs of whether the ECB elaborates on how it will use redemptions from its bond purchases after the scheduled close of the quantitative easing programme at the end of 2018.
“The key watch points will be the central bank’s interpretation of external risks and an improving inflation outlook, along with any commentary on the future reinvestment policy within its asset purchase programme,” Morgan Stanley strategists said.
The euro was a shade weaker at $1.1710, down form $1.1719 before the ECB decision. It had gained overnight from a low of $1.1664 after European Commission President Jean-Claude Juncker and U.S. President Donald Trump agreed to negotiate on trade.
Trump said they had agreed to “work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods”. He agreed to refrain from imposing car tariffs while the two sides launch negotiations, easing the threat of a transatlantic trade war.
Currency markets were far more circumspect about the outcome of the summit than equity and bond markets as investors waited for the fine print.
“The one thing we have learned from the last 18 months of Trump’s gyrating trade policies is that whatever looks certain today is likely to be undermined tomorrow,” Gavekal strategists said in a note.
The Japanese yen made tiny gains against the dollar and other higher yielding currencies as markets waited for the outcome of a Bank of Japan policy review next week.
The yen rallied briefly and yields surged on Monday after sources told Reuters that the BOJ, facing stubbornly low inflation, is in unusually active discussions before its rate review on July 30-31, with tweaks to its stock-buying techniques on the table.
The Japanese currency edged 0.1 percent higher against the dollar to 110.84 yen and was 0.3 percent up at 129.84 yen to the euro.
However, another drop by the Chinese currency after Wednesday’s bounce undermined broader risk appetite in markets. The offshore yuan fell half a percent to 6.79 to the dollar.
A more than six percent drop in the value of the Chinese currency since mid-June as trade tensions escalated has put pressure on export-oriented emerging markets.
Investors increased bearish positions over the past two weeks on all emerging Asian currencies, according to a Reuters poll.
Elsewhere, the dollar index held at a two-week low against a basket of six major currencies before it later traded flat at 94.316.
Sterling slipped to $1.3178 but expectations about a rate rise next week from the Bank of England limited any weakness.
Reporting by Saikat Chatterjee; Editing by David Stamp and Stephen Powell