FOREX-Euro up, dollar down: August ends with new milestones

* Euro set for fourth month of gains
* Dollar faces worst August in 5 years
* Investor adjust to Fed inflation policy shift
* Sterling remains on 2020 highs
* Yen steadies as investors bet Abenomics survives
* China services growth drives yuan to 14-month top
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Julien Ponthus
LONDON, Aug 31 (Reuters) - The dollar was set for a fourth
straight month of losses on Monday after a U.S. Federal Reserve
policy shift on inflation, while the euro was poised to post a
fourth month of gains, taking both currencies to levels last
seen in 2018.
Investors are adjusting to a speech last Thursday in which
Federal Reserve Chair Jerome Powell outlined an accommodative
policy change which is believed could result in inflation moving
slightly higher and interest rates staying lower for longer.
"Even if U.S. central bankers are likely to be pleased about
the interpretation of their measures, it is not good news for
the dollar", Commerzbank analysts commented.
"If one expects the domestic purchasing power of the dollar
to be eroded more quickly (as that is what inflation is) it is
difficult to assume that it will maintain its purchasing power
on the FX market in the long run", they argued.
"That is why EUR-USD is trading above 1.19, with the dollar
index (DXY) trading below 92.50", they concluded.
Against a basket of currencies =USD the dollar was flat at
92.256 in midday trading in Europe and is down 1.28% for the
month.
If sustained that would be its worst August in five years
and make for the longest run of monthly losses since the summer
of 2017.
The euro EUR=EBS was up 0.2% at $1.1929 and on track for a
1.3% monthly gain, which would be its fourth straight month of
increases.
With most of London's traders off on a holiday, attention
now turns to a handful of Federal Reserve officials due to speak
through the week, beginning with Richard Clarida at 1300 GMT
Monday, as they put more flesh on the bank's new policy
framework.
Eurozone inflation data on Tuesday and U.S. payrolls on
Friday will also be closely watched.
The British pound, currently trading around eight-month
highs, eased 0.23% at $1.3345.
"The British currency is back on the retreat today, which
likely reflects some reports that the UK Treasury is preparing
significant tax hikes to plug the massive hole that the pandemic
has left on public finances", said Marios Hadjikyriacos, an
analyst at XM.
"That is not what investors want to hear in the middle of a
recession, as raising taxes implies a slower recovery", he
added, arguing that "if this emerges as the next theme for the
pound, the recent rally would be at risk".
Earlier the yen steadied on the view that Japan's next
leader will stay the course on the 'Abenomics' economic revival
programme.
The yen JPY=EBS eased by about 0.5% to 105.91 per dollar,
having climbed as far as 104.195 on Friday in the wake of Shinzo
Abe's resignation as prime minister for health reasons.
Elsewhere trade was choppy as the boost to Asian currencies
from a solid expansion in China's service sector had begun to
fade a bit. China's yuan hit a 14-month peak of 6.844 to the dollar in
offshore trade CNH= as investors cheer the services growth
rather than fretting about a stalled rebound in manufacturing.