(Corrects the dollar/yen's low in the 12th paragraph to 101.77,
* Easing euro zone inflation rekindles deflation worries
* Some see ECB cutting rates as soon as this week
* Emerging market nerves highlight risk, support yen
By Hideyuki Sano
TOKYO, Feb 3 The euro licked its wounds near a
ten-week low against the dollar on Monday after soft euro zone
inflation data rekindled speculation the European Central Bank
may ease policy to stave off deflation.
Worries about capital flight from emerging economies also
kept investors at arms length from risk assets, underpinning the
yen over growth-sensitive, high-yielding currencies.
The euro traded at $1.3489 in early Monday trade, not
far from Friday's low of $1.3479, which was its lowest level
since late November.
Against the yen, the common currency hit a two-month low of
137.38 yen, facing the risk of settling below its
100-day moving average, now at 137.54, which some chartists
could regard as a major bearish signal.
The latest catalyst for the euro's fall was euro zone
inflation data on Friday, which showed a surprise easing to 0.7
percent year-on-year in January, matching a four-year low
touched in October.
Analysts had expected a rise to 0.9 percent from 0.8 percent
The data spurred speculation that the European Central Bank
could consider some form of monetary easing as soon as at its
policy meeting on Thursday.
Although ECB President Mario Draghi said in January
deflation was not threatening the euro zone, some countries are
already suffering deflation and the International Monetary Fund
warned deflation was a potential risk.
"We expect the euro zone inflation to slow further next
month to 0.6 percent and to stay under one percent in March. We
think the chance of rate cuts on Thursday is rising," said Shin
Kadota, chief Japan FX strategist at Barclays.
In contrast, U.S. economic data on consumption was fairly
robust, reinforcing views the world's biggest economy has can
weather the emerging markets turmoil, enabling the Federal
Reserve to keep reducing its stimulus.
That helped to keep the dollar index near a two-month high
set late last month. The index of the dollar's value against six
other major currencies stood at 81.271, a stone throw of
81.388 hit on Jan. 21.
The yen is also helped by safe-haven buying as investors
remained wary of emerging economies. The dollar traded at 102.20
yen, near an eight-week low of 101.77 yen hit last
Since late last month, the prospect of a reduction in the
U.S. monetary stimulus and slower growth in China have raised
fear of capital flight in some emerging economies that rely on
Although many of these currencies, including the Turkish
lira and South African rand, posted rebounds late
last week, investors are not convinced if the worst is over.
(Editing by Eric Meijer)