LONDON: The euro fell to a one-month low against sterling and a near four-week low against the yen on Tuesday, hurt by speculation the European Central Bank may signal easier monetary policy or even cut rates this week.
After data last week showed a sharp drop in euro zone inflation, some in markets expect the ECB to cut borrowing costs on Thursday, or at least lay the ground for a move.
The euro's fall against a broadly stronger sterling followed a survey showed UK services sector activity expanded at its fastest pace in 16 years last month, highlighting the differing outlooks for the UK and euro zone economies.
"The low level of euro zone inflation was bad news for the euro and this is why the prevailing pressure is on the downside," said Asmara Jamaleh, currency strategist at Intesa Sanpaolo in Milan.
She did not expect the ECB to take any action on Thursday but said the euro was likely to stay weak due to divergent euro zone and U.S. economic outlooks.
However, Jamaleh said the euro's recent fall had been "very large" since the inflation data. Further losses would be limited as long as it remained above chart support around $1.3425. Over the next few months it could drop below $1.30, she said.
The euro fell 0.7 percent on the day to 84.03 pence against sterling, its lowest since early October.
It fell 0.2 percent to $1.3490, staying above a seven-week low of $1.3442 set on Monday and chart support at $1.3445 from a trendline drawn from a low hit in early July.
The euro also fell 0.5 percent to 132.365 yen on the EBS trading platform, its lowest since Oct. 10. It extended losses after dropping below 132.63 yen, its 55-day moving average.
"The bias is for a weaker euro ... The market had got too long of euro/dollar and, given the uncertainty over the ECB, the theme could be some more squaring of short-term positions," said Paul Robson, currency strategist at RBS.
But the euro's losses against the dollar were modest after several Federal Reserve officials said on Monday there was no hurry to scale back its bond-buying stimulus.
The dollar index, which measures the dollar's value against a basket of currencies, was up 0.05 percent at 80.591, below a seven-week high of 80.930 on Monday.
The dollar fell 0.4 percent to 98.23 yen, while sterling climbed 0.5 percent to $1.6048.
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