Friday, March 28 12:13:36
The euro fell to a three-week low against the dollar today, with investors mindful of strong rhetoric from European Central Bank officials about its recent strength and awaiting German inflation data that could undermine it further.
Slightly soft Spanish inflation numbers put pressure on the euro, with more sellers likely to line up if the German data, due at 1300 GMT, underlines concerns about below-par inflation across Europe's largest economy, traders said.
That will keep alive the risk of a lower overall euro zone inflation reading for March on Monday, and bolster the chances that the ECB will act to ward off disinflation in the bloc. The ECB meets next Thursday and if it refrains from easing, as io previous months, that could give the euro a boost.
"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 was slightly lower on the day at $1.3730, having dipped to $1.37045 earlier, and was on track to end lower for a second straight week. Against the yen, it recovered to 140.55 yen, having dropped to 139.96 yen, its lowest level since early March.
Uncertainty whether the ECB will take action has injected volatility. The one-week implied volatility in the euro/dollar pair, a gauge of how sharp currency swings will be, climbed to 8.95 percent from 4.9 percent earlier this week.
The euro has sagged since suggestions of more ECB action this week from Germany - whose policymakers have in the past 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 that buying loans and other assets from banks was not out of the question.
Peripheral European government bond yields hit a multi-year trough on Friday while the gap between U.S. two-year bond yields and their German counterparts has widened.