FOREX-Euro slumps on soft price data, dollar books best month since May
* Weak euro zone inflation data spur view on more ECB action
* Dollar index records best monthly gain in 8 months
* Yen best G7 performer in January amid emerging market jitters
* Canadian dollar falls to 4-1/2 year low on sluggish growth
By Richard Leong
NEW YORK, Jan 31 (Reuters) - The euro fell on Friday as soft euro zone inflation data rekindled concerns the European Central Bank may have to act to combat deflation, while the dollar strengthened on mildly encouraging data to close out its best month since May.
Nagging worries about emerging market woes spreading underpinned safe-haven buying for the yen, which was on track to be the best performer among G7 currencies in January.
"The focus on the euro is that we could see a policy response from the ECB next week," said Shaun Osborne, chief foreign exchange strategist at TD Securities in Toronto.
Euro zone inflation data on Friday showed a surprise drop to 0.7 percent year-on-year in January. Analysts had expected a rise to 0.9 percent. Continued...