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Euro drops ahead of ECB; dollar gains on US data

The euro dropped to its lowest level against the dollar in eight months on Tuesday (Aug 5) as traders bet that this week's European Central Bank meeting would point towards further stimulus.

NEW YORK: The euro dropped to its lowest level against the dollar in eight months on Tuesday (Aug 5) as traders bet that this week's European Central Bank meeting would point towards further stimulus. The euro hit US$1.3358 at 1430 GMT, its lowest level since November 11, 2013, before recovering somewhat.

While the ECB is not expected to change interest rate policy, traders say the central bank could suggest it will enact further stimulus in light of weak economic growth in the region.

"The euro would continue its southerly grind lower should bank President Mario Draghi use stepped up dovish vocabulary that suggests a growing likelihood of stronger stimulus in the months ahead," said analyst Joe Manimbo of Western Union Business Solutions.

A more dovish outlook for the ECB would stand in stark contrast to the US Federal Reserve, which is expected to begin phasing out its stimulus measures in the coming months, Manimbo said.

The dollar also picked up support from better-than-expected US economic data that analysts say could accelerate the Fed's plans to lift benchmark interest rates. The Institute for Supply Management said its non-manufacturing purchasing managers index jumped 2.7 points to 58.7 last month, a larger increase than 0.5 percent gain analysts expected.

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