Euro touches eight-month low, European shares fall

Wed Jul 30, 2014 5:18am EDT
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By Emelia Sithole-Matarise

LONDON (Reuters) - The euro hit an eight-month trough against the dollar on Wednesday and German bond yields were at record lows ahead of inflation data expected to boost the case for further European Central Bank policy easing.

Investors were also awaiting a statement from the Federal Reserve following its policy meeting that some expect to signal a more hawkish policy outlook, and data likely to show the U.S. economy bouncing back strongly in the second quarter.

European shares dipped after French oil major Total was hit by concerns over its investments in Russia following Tuesday's tightening of European sanctions on Moscow after the downing of an airliner in neighboring Ukraine.

The euro fell to $1.3395, its lowest since November 2013, before recovering to $1.3400, down around 0.1 percent on the day after data showing Spanish consumer prices fell 0.3 percent in July from a year before.

The surprisingly big fall came even though figures released at the same time showed Spanish economic growth hit its fastest since before the financial crisis in the second quarter.

Traders said that if German inflation data, due at 8:00 am ET (1200 GMT), also came in below forecast, it would intensify pressure on the ECB to print money to support growth and avert deflation risks.

The ECB cut all its interest rates in June and promised up to 1 trillion euros in cheap long-term loans to banks from September, but kept the door open to a program of large-scale asset purchases, known as quantitative easing (QE).

"The likelihood that the ECB will need to do QE at the end of the year is sharply increasing," said Alessandro Giansanti, senior rate strategist at ING.   Continued...

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange July 24, 2014.      REUTERS/Remote/Stringer