* Dollar index near highest in nearly 8 weeks
* Upbeat U.S. data helps lift dollar sentiment
* Dollar/yen hovers in sight of 2-week high
(Updates prices, adds more comment)
By Patrick Graham
LONDON, May 28 The euro fell to a new
three-month low on Wednesday as expectations solidified for a
multi-pronged attack on monetary policy by the European Central
Bank next week.
A number of banks have been reluctant to continue to sell
the euro ahead of the central bank's policy meeting, speculating
that the scale of action it takes to bolster the economy - and
reduce euro zone interest rates - may yet disappoint markets.
But comments this week by ECB President Mario Draghi
were read as confirming the bank is on course to
ease policy significantly. Many banks now expect cuts in more
than one of its main rates as well as targeted steps to force
more credit into the economy.
"It does feel like something is finally beginning to change
on the euro," Neil Mellor, a strategist at Bank of New York
Mellon in London, said.
"A lot is riding on Draghi's shoulders, but if he does
confirm expectations (of strong action) then we could see the
euro slide deepen."
The euro was down 0.1 percent on the day at $1.3623
, just 10 pips off a three-month low of $1.3612 plumbed
Mellor pointed to the slowing of a rally in debt prices
across the euro zone's indebted southern periphery as evidence
that capital inflows to Europe may be slowing.
But the single currency has also drawn support from a number
of other factors this year including China's intervention to
weaken the yuan and the subsequent recycling of the dollars it
purchased in doing so into euros.
The Chinese currency fell further on Wednesday after
its biggest daily loss in a month against the dollar a day
earlier, hit by negative news from the property sector.
Top residential property developer China Vanke Co Ltd
said the days of rapid growth in the real estate
sector were over, indicating a government clampdown on
speculative investment and easy credit has gained traction.
"Chiefly this morning for the dollar its been a story of
strength against a number of the emerging or growth-related
currencies," Graham Davidson, a currency dealer with NAB in
"The market likes the dollar at the moment even though
Treasury yields are lower. If they start to rally, as I think
they will, then the dollar may take off."
The U.S. currency ground higher in morning trade to hit a
new eight-week peak against a basket of major currencies, helped
by some encouraging U.S. economic data in the previous session.
The dollar index last stood at 80.501, its highest since
It gained another 0.4 percent against sterling, hit over the
past couple of days by a combination of slightly weaker economic
data and hints of growing political threats to Britain's
long-term status quo.
"Its a confluence of things on sterling," NAB's Davidson
"The CBI data this morning, as with some of the other recent
numbers, were ok but they haven't been blockbusters either, plus
we had one building society hinting that house prices in London
might be ready to correct."
British media on Wednesday were also dominated by the latest
exchanges in the debate ahead of Scotland's referendum on
breaking away from the United Kingdom in September. A number of
banks have begun to rate a Yes vote there as a serious risk.
Against the yen, the dollar held steady near 101.96 yen
, staying within sight of a near two-week high around
102.14 yen set on Tuesday.
(Editing by John Stonestreet and Jane Merriman)