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Euro hits new 3-month low, sterling falls

Sean Gallup | Getty Images

The euro fell to a new three-month low on Wednesday as expectations solidified for a multi-pronged attack on monetary policy by the European Central Bank next week.

A number of banks have been reluctant to continue to sell the euro ahead of the central bank's policy meeting, speculating that the scale of action it takes to bolster the economy - and reduce euro zone interest rates - may yet disappoint markets.

But comments this week by ECB President Mario Draghi were read as confirming the bank is on course to ease policy significantly. Many banks now expect cuts in more than one of its main rates as well as targeted steps to force more credit into the economy.

The euro was down 0.2 percent on the day near $1.36, just 10 pips off a three-month low plumbed on Tuesday.

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Mellor pointed to the slowing of a rally in debt prices across the euro zone's indebted southern periphery as evidence that capital inflows to Europe may be slowing.

But the single currency has also drawn support from a number of other factors this year including China's intervention to weaken the yuan and the subsequent recycling of the dollars it purchased in doing so into euros.

The Chinese currency fell further on Wednesday after its biggest daily loss in a month against the dollar a day earlier, hit by negative news from the property sector.

Top residential property developer China Vanke said the days of rapid growth in the real estate sector were over, indicating a government clampdown on speculative investment and easy credit has gained traction.

Dollar boost

The U.S. currency ground higher in morning trade to hit a new eight-week peak against a basket of major currencies, helped by some encouraging U.S. economic data in the previous session.

The dollar index last stood near 81 its highest since early April.

It gained about another 0.4 percent against sterling, hit over the past couple of days by a combination of slightly weaker economic data and hints of growing political threats to Britain's long-term status quo.

British media on Wednesday were also dominated by the latest exchanges in the debate ahead of Scotland's referendum on breaking away from the United Kingdom in September. A number of banks have begun to rate a Yes vote there as a serious risk.

Against the yen, the dollar dipped 0.2 percent to near 102 yen, staying within sight of a near two-week high around 102 yen set on Tuesday.

—By Reuters

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