Wednesday October 1, 2014 - 00:14:10 GMT
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Reuters - www.reuters.com
FOREX-Euro pressured as low inflation puts heat on ECB
* Euro falls to fresh two-year low of $1.2571
* Euro zone inflation cools further in September
* China PMI & Australian retail trade data next in focus
By Ian Chua
SYDNEY, Oct 1 (Reuters) - The euro languished near a fresh two-year trough early on Wednesday, having come under fire as a further slowdown in euro zone inflation intensified pressure for more stimulus from the European Central Bank.
The common currency fell as far as $1.2571 before managing a bounce to $1.2629. That ended a dismal month in which it skidded 3.82 percent - its biggest decline in over two years.
Data on Tuesday showed annual inflation cooled to 0.3 percent in September, from 0.4 percent, well below the ECB's target of just under 2 percent.
Persistently weak price growth underscores the difficulty of hitting that target while the euro zone economy continues to stagnate.
"The EUR/USD gapped lower by a big figure, falling toward 1.2570, before finding support and partially rebounding to 1.2630 this morning," said David de Garis, senior economist at National Australia Bank.
"Euro zone equities closed up 1.2 percent, presumably assisted by the prospect of continued stimulative policy from the ECB."
The euro briefly dipped below 138.00 yen for the first time in nearly three weeks, but managed to claw back to 138.45.
Renewed heat on the common currency helped push the dollar index to a four-year high of 86.218. The index has since edged back down to 85.928.
Against the yen, the greenback was at 109.64, having scaled a six-year peak of 109.86.
Dollar bulls all but shrugged off a decline in U.S. consumer confidence in September and a home price report that fell short of expectations.
Many still believe the U.S. economy is on a recovery path that will allow the Federal Reserve to hike interest rates well before the ECB and Bank of Japan.
Indeed, the dollar index surged nearly 8 percent in the past three months, its best quarterly performance in six years.
Trading in Asia is again going to be subdued with China closed for National Day and pro-democracy unrest in Hong Kong sapping confidence.
Despite the holiday, China will release a survey on its vast manufacturing sector at 0100 GMT. Any disappointment will no doubt fan worries about slower Chinese economy.
On Tuesday, China cut mortgage rates and downpayment levels for some home buyers for the first time since the 2008 global financial crisis, stepping up efforts to boost a faltering economy.
Australia's retail sales due at 0130 GMT will also be closely watched by Aussie bears, who have so far failed to push the Australian dollar through its 2014 trough of $0.8660 .
The Aussie was last at $0.8747, having dropped 6.3 percent in September. (Editing by Shri Navaratnam)
© Thomson Reuters 2014. All rights reserved.
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