* Euro hits new lows against dollar and sterling
* BoE minutes in focus
* Australian dollar rises on surprisingly high core
By Jemima Kelly
LONDON, July 23 The euro hit an eight-month low
against the dollar on Wednesday as worries over tougher
sanctions on Russia and their potential impact on fragile euro
zone growth drove investors away from the single currency.
The euro also fell against sterling, which was supported
ahead of the latest minutes from the Bank of England's Monetary
Policy Committee, due at 0830 GMT. Markets will be looking for
any signs of when an interest rate hike might come, with any
move to a more hawkish tone likely to boost sterling further.
The Australian dollar rose over half a percent against the
U.S. dollar, boosted by a higher-than-expected reading of a key
gauge of underlying inflation in June, denting market
speculation of future rate cuts.
The euro's weakness was broad-based, dropping to its lowest
in nearly two years against the British pound. The single
currency fell to 78.83 pence, its lowest since
Against the dollar, the euro fell to $1.3455, its
lowest since November 2013, with investors eying more losses in
coming days. The euro was down 0.2 percent against the yen
at 136.45 yen, trading near its lowest in more than
"There is quite broad-based pressure building on the euro
and there are a number of factors driving that. Europe is
directly exposed to Russia by trade - Germany in particular - so
sanctions could potentially have a negative impact on the euro,"
said Ian Stannard, a currency strategist at Morgan Stanley.
Stannard also said that comments overnight from Chinese
officials, suggesting there have been capital outflows from
China, would imply that China's reserve accumulation is slowing,
reducing the need for the purchase of alternative reserve
currencies, of which the euro has been a main beneficiary.
Traders said it was significant that the euro had closed
below $1.35 on Tuesday for the first time this year, making the
currency appear technically weak. It could fall below reported
option barriers at $1.34 in the coming days if flash PMI and
German IFO data disappoint, they said.
The dollar index, which tracks the greenback against
a basket of six major rivals, was steady on the day at 80.781,
not far from a Tuesday high of 80.837 touched on expectations
that higher U.S. interest rates are on the horizon.
Data issued on Tuesday showed U.S. inflation was 0.3 percent
in June, in line with most analysts' forecasts, though core
inflation, excluding volatile food and energy prices, was just
0.1 percent, about half of what analysts had forecast.
Despite the weaker-than-expected core inflation reading,
markets still expect the U.S. Federal Reserve to continue
tapering its bond purchase programme and then raise interest
rates in the latter half of 2015.
"The U.S. will raise next year, while in Europe, by
contrast, we might see more easing steps," Ayako Sera, senior
market economist at Sumitomo Mitsui Trust Bank in Tokyo.
The premium offered by two-year U.S. Treasuries over German
debt has widened to around 46 basis points, levels not seen
The Australian dollar added about 0.6 percent to buy $0.9446
, after spiking to a nearly two-week high of $0.9439 on
the surprisingly high core inflation figures.
(Additional reporting by Lisa Twaronite; Editing by Susan