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Euro, pound fall vs dollar as ECB, BoE set to keep easy policy

John Lund | Photographer's Choice | Getty Images

The euro and sterling fell against the dollar on Thursday as investors sold them before European Central Bank and Bank of England policy meetings expected to re-affirm loose monetary policy.

Those moves lifted the dollar off a six-week low against a basket of currencies hit after the Federal Reserve on Wednesday gave no fresh hints that it was preparing to scale back stimulus at its next meeting in September.

(Read more: Steady Fed: Printing presses to keep on rolling)

The euro was down 0.5 percent at $1.3240, retreating from a six-week high of $1.3345 struck after the Fed decision. Sterling fell to $1.5140, helping push the dollar index 0.7 percent higher to 82.056.

The ECB is seen likely to hold off on further stimulus but to stand by last month's forward guidance that its main interest rate will stay at 0.5 percent or lower for an "extended period".

The BoE, whose policy decision is due at 1100 GMT, is likely to stick with its commitment to low rates and prepare markets for the expected introduction of forward guidance with the bank's quarterly inflation report next week.

"The ECB will reinforce its dovish message because since last month, (short-term) rates have edged up, as has the euro," said Beat Siegenthaler, currency strategist at UBS. "The ECB will not be satisfied with this and at the margins, I think they can even cut rates."

(Read more: What to expect in US dollar, euro trade)

He added this was likely to push the euro lower against both the dollar and sterling.

Analysts expect the dollar to resume its upward trend in coming weeks as the Fed is still seen on course to become the first major central bank to consider withdrawing stimulus.

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Most economists expect the Fed to begin slowing its asset-buying programme as early as next month, especially in light of data showing U.S. economic growth was stronger than expected in the second quarter.

"The Fed sounded a bit more dovish on the economy ... just enough to keep the dollar from going too far on the back of stronger data. In fact, you saw yields in the U.S. go lower overnight. That leaves us still waiting for other major central banks," said Greg Gibbs, senior strategist at RBS in Singapore.

(Read more: How low must the Aussie go before the RBA backs of?)

Traders also say a strong U.S. jobs data on Friday could add to expectations that the Fed could begin scaling back stimulus in September - a move that would boost the dollar.

The dollar rose 0.8 percent to 98.65 yen on steady buying by funds, traders said.

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