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Euro falls as central bankers pledge inflation fight

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The euro dropped on Thursday after the European Central Bank kept interest rates on hold and pledged to use unconventional measures if needed to battle low inflation in the euro zone.

The euro last stood off close to 0.40 percent against the dollar around $1.37 and was down about 0.14 percent against the British poundand 0.25 percent against the Japanese yen.

Euro zone annual inflation ticked down to 0.5 percent in March, its lowest since the economy was deep in recession in 2009, and its sixth month in what Draghi has described as "the danger zone" below 1 percent.

The euro's decline fed a rally in the dollar, with the U.S. dollar index up around 0.27 percent close to 80.42 in early New York trading.

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The dollar was up against the yen at 103.95 yen after touching a high of 104.06.

Unlike in January and February, there had been few if any mainstream voices in the market predicting action from the ECB in the form of a cut in its official interest rates.

The main move of the past two weeks on major currency markets has been the dollar's steady march higher against the yen, awakening hopes that the greenback may finally be set to deliver on the break higher predicted by many banks in January.

The dollar has gained almost 3 percent against the yen since U.S. Federal Reserve chief Janet Yellen told markets on March 19 that the Fed might raise interest rates next spring. U.S. jobs data on Friday may be the decisive factor for any further gains.

Low-Flation

International Monetary Fund Managing Director Christine Lagarde on Wednesday called on the ECB to ease policy, warning "low-flation" in advanced economies risked undercutting an already sluggish global recovery.

But U.S. data has generally improved after a dip in fortunes now put down largely to harsh winter weather. Worries over China and Ukraine that prompted investors to seek the relative security of the yen have also slipped at least momentarily off the agenda.

A Reuters poll of over 60 foreign exchange strategists taken this week predicted the euro would fall to $1.37 in one month, $1.33 in six and $1.29 in a year.

Steen Jacobsen, chief investment officer with leading retail FX platform Saxobank, sees the euro sinking to $1.25 this year on the back of more aggressive action later in the year to ease monetary conditions.

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