* Worries over budget, current account deficits weigh
Dollar falls at low as 106.18 yen
* Euro climbs back above $1.25
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Feb 15 (Reuters) - The dollar tumbled across the board on Thursday, hitting a 15-month low against the yen as worries over twin deficits in the United States mounted amid a government spending splurge and large corporate tax cuts.
The greenback briefly jumped on Wednesday after data showed U.S. inflation was stronger than expected in January, bolstering expectations that the Federal Reserve could increase interest rates as many as four times this year.
But it quickly turned lower, eventually posting its worst daily performance in three weeks against a basket of major rivals. The dollar added to those losses on Thursday, with the index hitting a two-week low of 88.585.
The U.S. national debt recently topped $20 trillion, while the 2019 fiscal deficit is projected at near $1 trillion, including deficit-financed tax cuts and two-year spending caps that Congress passed last week.
"The story I hear most frequently from people is it's the re-emergence of the twin deficits," said RBC Capital Markets head of currency strategy Adam Cole, in London, of the dollar's persistent weakness. "There seem to be concerns on the U.S. fiscal position and what that implies for the current account."
Cole said news events that would normally be seen as buying opportunities for the dollar, such as Wednesday's inflation data, were only having temporarily positive effects.
"Momentum is very strongly against the dollar and every bounce is seen to be a selling opportunity, even though the catalyst seemed to be quite legitimately taking the dollar higher yesterday," he added.
Some strategists suggested another reason for the dollar's falls after Wednesday's data was that U.S. consumer price growth was seen as a gauge for global inflationary pressures and that, as such, stronger growth would suggest a faster pace of monetary tightening from other central banks.
Against the yen, the dollar skidded as much as 0.8 percent to 106.18 yen, its lowest since November 2016. That marked a drop of 3.8 percent from its early February peak near 110.50 yen.
In the wake of the dollar's sharp drop against the yen over the past couple of weeks, there was increased focus on whether Japanese exporters and Japanese investors would step up moves to hedge their exposure to the U.S. currency.
"As a defensive mechanism I think they will probably be more inclined to sell dollars here to protect downside risk for further U.S. dollar weakness," said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.
"Obviously I think we're going to have the verbal lashing from Japan's currency officials. But I still think we're not close to the point of overt intervention."
Japanese Finance Minister Taro Aso said on Thursday he did not see current yen moves as being strong or weak enough to warrant intervention, adding that there was no plan now to respond to FX moves.
The euro climbed back above $1.25 for the first time in two weeks, trading up as much as half a percent on the day. (Reporting by Jemima Kelly; Additional reporting by Masayuki Kitano in Singapore; editing by John Stonestreet)