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Dollar mixed ahead of central bank meetings

The dollar on Wednesday (Aug 6) dropped against the yen and the euro, but gained on the British pound ahead of central bank meetings in Britain, Japan and Europe later this week.

NEW YORK: The dollar on Wednesday (Aug 6) dropped against the yen and the euro, but gained on the British pound ahead of central bank meetings in Britain, Japan and Europe later this week.

The euro, which had dropped to its lowest level in eight months on Tuesday, rallied slightly against the dollar on Wednesday.

While no new ECB stimulus measures are expected this time, some analysts say Thursday's European Central Bank meeting could spark more euro selling if ECB chief Mario Draghi and others hint at the need for further action.

But the euro could also be primed to advance, said Joe Manimbo, senior market analyst Western Union Business Solutions.

"With so many in the market betting on further euro weakness, the slightest trigger, like a less dovish sounding ECB, could see the euro catch a bounce," Manimbo said.

Investors will also be looking for signals from the Bank of England at Thursday's meeting. No new major policies are expected out of London either, but the tone will be important.

"There's a growing belief that certain members of the monetary policy committee will push and possibly even vote for earlier tightening" of interest rates, said Kathy Lien, managing director at BK Asset Management.

Of the three currency trades, the dollar's move on Wednesday was biggest against the yen ahead of a two-day Bank of Japan meeting that kicks off on Thursday.

Analyst David Song of DailyFX wrote in a note last week that the commentary in Tokyo could be supportive of the yen because of growing confidence Japan will achieve its two percent inflation target.

"It seems as though the BoJ will once again refrain from further expanding its asset-purchase programme as Governor Haruhiko Kuroda remains upbeat on the Japanese economy," Song said.