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FOREX-Dollar rises vs euro as traders eye ECB rate decision

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(Updates to U.S. afternoon)

By Saqib Iqbal Ahmed

NEW YORK, July 20 (Reuters) - The U.S. dollar rose against the euro on Wednesday in a choppy session, but its gains were capped as traders were hesitant to drive big moves ahead of a crucial European Central Bank policy decision on Thursday.

The single currency has rallied about 2% in the last three trading sessions on expectations the ECB might deliver a big 50-bps rate hike and a Reuters report that a key Russian gas pipeline would reopen on time after maintenance.

"The euro popped yesterday on the slight possibility that the ECB would consider a 50 basis point hike," said John Doyle, vice president of dealing and trading at Monex USA.

"I think expectations of that have waned a bit this morning especially with the energy crisis back in the headlines."

The European Union told member states on Wednesday to cut gas usage by 15% until March as an emergency step after President Vladimir Putin warned that Russian supplies sent via the biggest pipeline to Europe could be reduced further and might even stop.

Both events - the ECB meeting and the reopening of the Nord Stream 1 conduit after a 10-day shutdown - are due on Thursday, leaving markets on tenterhooks.

"Our expectation is the ECB will only hike 25 bps this month. But the chance of a upside surprise will keep EUR/USD choppy until the decision is released," Doyle said.

The dollar was about 0.52% lower against the euro at $1.0168.

The common currency came under additional pressure on Wednesday after a report Italy's Five Star Movement party would not take part in a confidence vote called by Prime Minister Mario Draghi, making it more likely Draghi will resign later in the day.

Against a basket of currencies, the dollar was 0.5% higher at 107.17, not far from the two-decade high of 109.29 touched last week.

The dollar was about 0.1% lower against the yen at 138.27 yen. The Bank of Japan is expected to stick to its dovish stance at its Thursday meeting..

Sterling weakened against the dollar, as data showed British inflation climbed to its highest rate in 40 years, but only slightly above forecast. Against the dollar, the pound was 0.3% lower at $1.1961.

The Canadian dollar slipped about 0.2% against the U.S. dollar after data showed inflation in Canada picked up speed again in June, though the gain missed forecasts.

In cryptocurrencies, bitcoin was about 1.02% higher at $23,643.49, on pace for its third straight day of gains, as traders bet the recent bout of weakness that had engulfed the market was over.

(Reporting by Saqib Iqbal Ahmed; Editing by Alison Williams and Richard Chang)