* Soft euro zone inflation could see euro drop
* Euro trade-weighted index at 13-month lows
* Dollar index near highs, Aussie firm
By Anirban Nag
LONDON, Aug 29 The euro was on track for a
second straight month of losses on Friday, with selling likely
to accelerate if data show euro zone inflation has slowed
further, making it more likely the European Central Bank will
The euro was trading near a one-year low against the dollar,
a 21-month low against the Swiss franc and a two-week low
against the pound and the yen. The losses drove the euro
trade-weighted index to its lowest since July last
With euro zone bond yields also near record lows and
overnight inter-bank lending rates trading below zero
for the time ever, rate differentials were moving against the
The euro was trading at $1.3165, down 0.1 percent on
the day, not far from the one-year low of 1.31525 it struck on
The single currency has lost more than 2 percent in the past
two weeks. One reason was the conflict in Ukraine and Russia,
which is likely to weigh on growth in the euro zone. Another was
ECB President Mario Draghi's dovish speech last Friday.
Draghi said the ECB was prepared to respond with all its
"available" tools if inflation slows further. A report on August
inflation is due at 0900 GMT, although stable German inflation
data earlier made ECB action next week somewhat less likely.
Analysts polled by Reuters expect annual euro zone inflation
slowed to 0.3 percent in August from 0.4 percent in July. That
would be well below the ECB's danger zone of 1.0 percent and its
target of just under 2.0 percent.
Any reading in line with forecasts or below them would
heighten expectations of more monetary stimulus soon, which
would weigh on the euro.
"Although elevated speculative short positioning is limiting
euro/dollar downside, we still prefer selling the single
currency against higher yielding currencies," said Manuel
Oliveri, currency strategist at Credit Agricole.
Against the Swiss franc, the euro skidded as far as 1.2049
on Thursday, moving ever close to the 1.20 barrier
that the Swiss National Bank has vowed to protect. It last
traded at 1.2058, still down on the day.
CONTRAST TO THE U.S.
In contrast to the euro zone, the U.S. economy rebounded
more strongly than initially reported in the second quarter,
revised data showed, and a bigger chunk of the growth was driven
by domestic demand. The revision highlighted the
difference in U.S. and euro zone monetary policy outlooks.
The euro's drop saw the dollar index rise to 82.541,
back towards its 13-month peak of 82.727 hit on Wednesday.
The dollar also rose against the yen. It was trading firm at
103.80, though below a recent high of 104.49.
Japanese economic data had little effect on the yen. The
reports showed a rise in the jobless rate and
weaker-than-expected growth in industrial output.
"A rise in the jobless rate could undermine the BOJ's
scenario that an improving job market boosts wages and
inflation," said Minori Uchida, chief FX strategist at the Bank
of Mitsubishi-Tokyo UFJ.
"The market appears not much interested in the Japanese
economy now, but that may change towards the year-end as the
government has to decide on whether or not it will go ahead with
a tax hike planned next year," he added.
The Australian dollar, meanwhile, appeared to march to its
own beat this month, rising against almost every other major
It has reached fresh 2014 peaks against the euro, yen and
its New Zealand peer. Against the greenback, it was trading at
$0.9357, having hit a three-week high of $0.9374 on Thursday.
(Additional reporting by Hideyuki Sano in TOKYO; Editing by