* Euro touches fresh eight-month low vs dollar
* German inflation data in focus
* Dollar index holds firm, hits fresh six-month peak
* Eyes on U.S. Q2 GDP, Fed statement later on Wednesday
(New throughout, new quote, updates prices, changes dateline,
By Jemima Kelly
LONDON, July 30 The euro fell below $1.34 on
Wednesday for the first time since last November before German
inflation data that was likely to add to the case for the
European Central Bank pumping more money into a moribund
The first batch of regional German data showed inflation
falling well below 1 percent even in the euro zone's strongest
economy just as prices in Spain, Greece and Portugal are
The contrast between that picture and an increasingly robust
U.S. recovery is one factor behind the dollar's rise this week
to a six-month high against a basket of major currencies.
A Federal Reserve policy decision and statement later on
Wednesday will be looked to for any hint of when U.S. interest
rates could be raised next year. Second quarter gross domestic
product data is also due at 1230 GMT.
The euro hit a fresh eight-month low of $1.3395 before
recovering to $1.3400, down around 0.1 percent on the day.
Traders said if German consumer price data, due at 1200 GMT,
came in below forecast, it would put more pressure on the ECB
but that further easing was not likely soon given its recently
announced package of cheap long-term loans to banks.
"Given that they've just announced a package of easing
measures - the target LTROs (long-term refinancing operations)
won't even take place until September and December - I think the
ECB is willing to take some times," said Lee Hardman, a currency
economist at the Bank of Tokyo-Mitsubishi UFJ.
The Fed is expected to cut its monthly bond-buying programme
by another $10 billion on Wednesday and may also hint at an
approaching hike in interest rates in light of labour market
growth, with unemployment at its lowest in six years.
"A more dovish than expected outcome with few changes could
see a reversal of recent USD buying, but the introduction of new
language on the impact of stronger labor markets following (Fed
chair) Yellen's recent remarks would still be a significant
hawkish surprise," Citi analysts said in a note.
Against a basket of major currencies, the dollar touched a
high of 81.283, its strongest level in six months.
Worries about tension in Ukraine and concerns that sanctions
against Russia would have a negative economic impact on Europe
have weighed on the euro recently, said Bart Wakabayashi, head
of foreign exchange for State Street Global markets in Tokyo.
"This is something that everyone has been saying for six
months or so now, but there has recently been some confirmation
of that," Wakabayashi said, adding that such issues were
unlikely to go away soon.
A survey released late last week had shown that German
business sentiment fell to its lowest level in nine months in
July, adding to signs that Europe's largest economy is slowing
and suggesting that firms are worried about the crises in
Ukraine, Iraq and Gaza.
Another European economy, Sweden, said its economy grew less
than expected in the second quarter, driving the crown to its
weakest against the dollar in two years at 6.8935 crowns per
On Tuesday, the European Union and the United States
announced further sanctions against Russia, targeting its
energy, banking and defence sectors in the strongest
international action yet over Moscow's support for rebels in
The dollar hit a three-week high of 102.19 yen.
(Additional reporting by Ian Chua in Sydney and Masayuki Kitano
in Singapore, editing by Nigel Stephenson)