* Euro falls to lowest in nearly a year against the USD
* Dollar index extend gains, up near one-year peak
* Euro zone inflation data key this week
By Ian Chua
SYDNEY, Aug 25 The euro fell to its lowest in
nearly a year against a broadly firmer dollar on Monday after
comments from the head of the European Central Bank raised
prospects of more policy easing as early as next week.
The common currency skidded to $1.3185 in early
trade, from around $1.3246 late in New York. It also lost ground
against many other currencies, notably hitting a near 10-month
low on the Australian dollar at A$1.4163.
That helped lift the dollar index towards its Sept. 5
peak of 82.671. A break above will take it to levels not seen
since July 2013.
In a stronger language than he has used in the past, ECB
President Mario Draghi on Friday stressed the central bank is
prepared to respond with all its "available" tools should
inflation drop further.
"Even more significantly, Draghi departed from the script
originally published on the ECB's website on delivery, adding a
section on inflation expectations during August," said Ray
Attrill, global co-head of FX strategy at National Australia
"He noted a decline in short, medium and longer term
inflation expectations and indicated this would be acknowledged
at the Sept meeting. So it looks like more easing ahead..."
The ECB holds its next policy review on Sept 4.
Ahead of that, euro zone inflation data due on Friday will
be closely watched. Analysts polled by Reuters expect annual
inflation to have slowed to 0.3 percent in August from 0.4
percent in July. That is well below the ECB's danger zone of 1.0
percent and its target of just under 2.0 percent.
In contrast, Federal Reserve Chair Janet Yellen on Friday
nodded to the concerns of some Fed officials about the sustained
level of monetary policy stimulus, even as she stressed the need
to move cautiously on raising rates.
"The Jackson Hole summit brought nothing new on the timing
of the Fed's first rate hike, but it confirmed a symmetrical
conditional shift in the Fed's labour-centred forward guidance
towards potential earlier rates lift-off before mid-2015," said
Lena Komileva, chief economist at G+ Economics.
As a result, Fed funds futures fell back <0#FF:> as the
market priced in the risk of an earlier move on rates. Yields on
two-year Treasury paper climbed over 8 basis points
for the week, the largest such rise since June last year, while
the yield curve flattened markedly.
That is helping the dollar outperform broadly. It hit a
seven-month high against the yen at 104.49 before pulling
back slightly to stand at 104.22. The New Zealand dollar plumbed
a six-month low at $0.8336.
Traders said the market might have already seen the trading
range for the day in Asia with little in the way of
market-moving economic data. A bank holiday in Britain will
ensure a quiet start to the European session as well.
(Editing by Shri Navaratnam)