Euro falls, German yields tumble on below-forecast inflation

LONDON Fri Jan 31, 2014 5:20am EST

LONDON Jan 31 (Reuters) - The euro fell against the yen and the dollar, while benchmark 10-year German Bund yields plunged to six-month lows on Friday after euro zone inflation dropped unexpectedly in January.

The fall in inflation is likely to increase speculation the European Central Bank, which meets next week, may ease policy further.

Consumer prices in the 18 countries sharing the euro fell to 0.7 percent year-on-year in the first month of 2014, down from 0.8 percent in December and compared with a 0.9 percent forecast in a Reuters poll.

The euro fell to a 10-day low of $1.35175 after the inflation data from around $1.3540 beforehand. The single currency fell more sharply against the yen, dropping to a two-month low of 138.53 yen, down from 138.88 earlier.

German 10-year Bund yields fell 4 basis points to a six-month low of 1.574 percent, while two-year yields hit two-month lows of 0.079 percent. Money market rates also fell

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