Euro slips on risk of lower inflation data, yen drifts lower

LONDON, March 17 (Reuters) - The euro fell against the dollar and pared its gains against the yen on Monday as some fretted that euro zone inflation data for February could be revised down in its final reading, keeping pressure on the European Central Bank to ease policy more.

The safe-haven yen slipped against the dollar as European stocks edged up on expectations the West will impose only limited sanctions on Russia after Ukraine's Crimea region voted in favour of annexation by Moscow.

Over 95 per cent of Crimean voters chose in a referendum to join Russia on Sunday, an outcome that was denounced by Western powers and Kiev as illegal and a sham.

While the risk of flare-ups in tension between Russia and Ukraine is underpinning demand for safe-haven currencies like the yen and the Swiss franc, the market's immediate focus this morning is on final euro zone inflation data due at 1000 GMT.

A Reuters poll forecast no revision to the annual rate of 0.8 per cent reported for February, but there is a risk it could be revised down, keeping alive concerns about disinflation in the euro zone. "Our economists expect that the strong 0.8 per cent which the flash estimate produced will be revised downwards to 0.7 per cent," said Ulrich Leuchtmann, currency strategist at Commerzbank, Frankfurt. "This combined with fears that the March result might be even lower is likely to keep alive speculation as to whether the ECB might cut rates once more after all. The area around $1.3970 will have to constitute a natural barrier. In the end the risk-reward-ratio is more attractive on the downside."

The euro was down 0.2 per cent at $1.3883, off a 2-1/2-year high around $1.3967 touched last Thursday, before European Central Bank President Mario Draghi knocked it lower when he voiced concerns about its strength.

Against the yen, the euro was flat at 140.98 yen off a session high of 141.34 yen struck in Asia. It remained well shy of its March 7 high of 143.79 yen, which was its highest since Jan. 2.

YEN RESILIENCE

Some attributed the yen's resilience to short-covering along with traditional safe-haven plays.

The latest data from the Commodity Futures Trading Commission released on Friday showed that speculators pared bullish bets on the US dollar for a fifth straight week through March 11, with net longs falling to their lowest in more than four months.

Overall, though, investors have maintained net long positions on the dollar for 19 consecutive weeks. The last time speculators were short the greenback was in late October 2013.

A record drop in foreign governments' holdings of US Treasuries led some to speculate that Russia has been reducing its dollar reserves ahead of possible sanctions from the West.

The dollar was up 0.2 per cent at 101.58 yen, not far from a two-week low of 101.205 yen struck on Friday and a far cry from a 1-1/2 month high of 103.77 yen hit on March 7.

Investors were also considering the implications of Beijing's announcement on Saturday that it will double the daily trading range for the yuan. The step was viewed as a sign of confidence that the central bank had successfully fought off currency speculation. "Nothing forced them to widen the band this weekend, so it will be seen as a continuation of long-term policy," Citi strategist, Steve Englander wrote in a note. "I would see it as slightly risk-on. Small positive for the Australian dollar, small negative for the yen, but again a second-order impact."

The yuan weakened on Monday.

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