U.S. inflation, Greek tensions in focus

Sun Mar 22, 2015 4:27am EDT
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By Gavin Jones

ROME (Reuters) - Markets still digesting an unexpectedly cautious message from the Federal Reserve will get more food for thought this week with U.S. inflation data and potentially rising risks of a Greek exit from the euro zone.

The massive monetary stimulus programs deployed by advanced economies are producing fierce foreign exchange swings and fuelling talk of a currency war.

The euro hit a 12-year low below $1.05 against the dollar at the start of last week only to jump back to $1.10 on Wednesday - its biggest one-day rise in six years - after the Fed signaled it was in no hurry to raise rates after all. By Friday the euro had eased back to $1.08.

The Chinese yuan reversed a long declining trend to post its strongest weekly rise against the dollar since 2007 due to a rush of dollar sales by major state-owned banks.

Bank of Japan Governor Haruhiko Kuroda dismissed talk of competitive devaluations to spur economic growth, saying on Friday that the Fed, the BOJ and the European Central Bank had all printed money "to achieve their price stability targets, not to depreciate their currencies."

Currency war or not, as long as foreign exchange movements remain so sharp, crucially determining the outlook for growth and inflation, currencies will remain uppermost in policymakers' minds.

The ECB may be hoping the euro continues to slide towards dollar parity as it frets over deflation and tries to help a fledgling euro zone economic recovery.

U.S. inflation figures for February on Tuesday will be particularly closely watched after the Fed removed its reference to being "patient" about raising rates from last week's policy statement but indicated it will be very much data-dependent in deciding when to tighten policy.   Continued...

A Greek flag is framed by marble pillars at the Attalos arcade in Athens February 26, 2015.  REUTERS/Yannis Behrakis