The euro fell to two-year lows against the dollar and the pound on Tuesday after data showed that the annual rate of euro zone inflation slowed to a five year low this month. EUR/USD hit lows of 1.2571, the weakest since September 2012, and was last down 0.68% to 1.2599. The drop in the euro came after Eurostat reported that the annual rate of euro area inflation fell to 0.3% this month from 0.4% in August. Falling energy prices were the main factor behind the slowdown in the cost of living. Energy prices fell 2.4% in September, having dropped by 2% in the previous month. The core rate of inflation, which strips out food and energy costs, was down to 0.7% form 0.9% in August. The ECB targets an inflation rate of close to but just below 2%. The weak inflation data added to pressure on the ECB to implement additional stimulus measures to stave off the threat of deflation in the region, ahead of its monthly meeting on Thursday. The ECB unexpectedly cut rates to record lows earlier this month in a bid to shore up growth in the region. Demand for the dollar continued to be underpinned by expectations that the Federal Reserve is moving closer to hiking interest rates. The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was last up 0.39% to 86.06, after rising to peaks of 86.34 earlier, a high last seen in June 2010. Investors were looking ahead to Friday’s U.S. nonfarm payrolls report after August’s report fell short of expectations. Elsewhere, EUR/GBP hit lows of 0.7767, the lowest since July 2012, and was last at 0.7777, down 0.44% for the day. Sterling was boosted after data on Tuesday showed that the U.K. economy grew more strongly than expected in the second quarter. The Office of National Statistics reported that U.K. gross domestic product grew 0.9% in the three months to June, up from the preliminary estimate of 0.8%. Output in the U.K. services sector rose by 1.1% in the quarter, the fastest growth since the third quarter of 2011, while construction output was revised up to 0.7%, compared with a previous estimate of no growth. The annual rate of growth was unrevised at 3.2% the ONS said.