* Euro pressured by ECB easing speculation
* Kiwi among the best performers, hits 2-1/2 year highs vs
* German, euro zone inflation data next in focus
(Adds extra quotes, details)
By Anirban Nag
LONDON, March 28 The euro fell to three-week low
against the dollar on Friday, with investors wary given strong
rhetoric from European Central Bank officials about its recent
strength and awaiting German inflation data that could undermine
Slightly soft Spanish inflation numbers led to a drop in the
euro in early trade in London, with more sellers likely to line
up if German inflation data, due at 1300 GMT, highlights subdued
price pressures in Europe's largest economy, traders said.
That will keep alive the risk of a lower inflation reading
for March from the euro zone on Monday and bolster chances that
the ECB will probably have to act to ward off disinflation in
the currency bloc. The ECB meets on Thursday to decide on
The euro fell 0.2 percent to $1.3710 and was on track
to end lower for a second straight week. Against the yen, the
common currency fell to 139.96 yen, its lowest level
since early March.
"The March consumer inflation numbers for the euro zone are
important and we expect a soft reading which will lead to
expectations of a dovish ECB," said Yujiro Gato, currency
analyst at Nomura.
"So there are downside risks to the euro going into next
week, although having said that there is always a chance that
the ECB may disappoint and take no action. In that case, the
euro is bound to react strongly."
The euro has sagged since comments this week for more ECB
action came surprisingly from Germany, whose policymakers have
repeatedly voiced concerns about unorthodox monetary easing.
ECB Governing Council member and Bundesbank chief Jens
Weidmann said negative interest rates were an option to temper
euro strength and buying loans and other assets from banks to
support the bloc was not out of the question.
Peripheral European government bond yields hit a multi-year
trough on Friday while the premium that U.S. two-year debt pays
over German paper widened.
An overwhelming majority of economists polled by Reuters
expect no imminent rate move at the April 3 meeting. Only two of
72 economists predicted a rate cut, versus 26 of 78 who did
before last month's meeting.
KIWI ON FIRE
Well ahead of every other developed country in normalising
policy is New Zealand, which this month lifted interest rates
from a record low and flagged more tightening.
Unsurprisingly, the New Zealand dollar has been among the
strongest performers in recent months. It rose as far as $0.8697
a high not seen since August 2011. Against the yen, the
kiwi hit a six-year high of 88.86.
The U.S. dollar traded little changed at 102.15 yen.
The yen showed limited reaction to data that showed Japan's core
consumer prices rising 1.3 percent in February from a year
earlier, posting a ninth straight month of gains and hinting
that the economy is making some progress to overcome 15 years of
Japan's CPI is expected to gather more attention after the
country raises its consumption tax in April, which may cool
consumer spending and raise speculation of further monetary
easing by the Bank of Japan.
"Into the March 31, year-end dollar/yen may be pressured
below 102, but thereafter concerns about the negative impact
from April's sales tax hike might weigh on the yen," said Tom
Levinson, currency strategist at ING.
(Editing by Toby Chopra)