* Greenback bounces after stronger-than-expected U.S. CPI
* Caution ahead of Fed meeting, concerns about Iraq crisis
* Aussie drops after unexpectedly dovish RBA minutes
* Sterling backs off five-year highs; BOE minutes awaited
(Updates market action, changes byline, dateline, previous
By Richard Leong
NEW YORK, June 17 The U.S. dollar rose on
Tuesday as news of a stronger-than-expected pickup in inflation
supported the view the Federal Reserve might raise interest
rates sooner than some traders had thought.
Weaker price growth has hurt global growth. Earlier this
month, the European Central Bank lowered a key rate into
negative territory in an effort to avert deflation that could
hobble the euro zone economy for years.
U.S. central bankers in the meantime began a two-day meeting
where analysts expect they will further pare their bond purchase
program and show no inclination to hike policy rates until the
second half of 2015.
"If the Fed decides to be less dovish, that could give a bid
to the dollar," said Sebastien Galy, currency strategist at
Societe Generale in New York.
On Tuesday, the government said the U.S. consumer price
index, its broadest inflation gauge, rose 0.4 percent in May for
its biggest increase in more than year.
The inflation news was mitigated by weaker-than-expected
figures on domestic housing starts and lingering concerns about
the fighting in Iraq and a gas dispute between Russia and
Ukraine, limiting the rise in the dollar, analysts said.
The greenback gained 0.35 percent against the yen at 102.19
yen, while the euro weakened 0.24 percent against the
dollar at $1.3542.
The rise in the U.S. currency coincided with a rise in U.S
bond yields in the wake of the surprisingly strong CPI report.
The yield on two-year Treasuries earlier hit 0.488
percent, its highest since early April.
AUSSIE FALLS, POUND STEADY
Among other currencies, the Australian dollar was set for
its biggest drop against the greenback in over two weeks after
the minutes from the Reserve Bank of Australia expressed doubts
as to whether the RBA had done enough to stimulate the economy.
The Aussie was 0.67 percent lower at $0.9337.
Sterling retreated from a five-year high against
the dollar in the wake of below-forecast U.K. inflation numbers.
They stemmed its recent surge on rising expectations the Bank of
England could raise interest rates before year-end.
The pound was 0.1 percent lower against both the dollar and
euro at $1.6986 and 79.83 pence
Traders said it may take a strong message from BOE minutes
from its last policy meeting due Wednesday to shift the sterling
back above $1.70.
"This recent inflation data will put a small dent in
expectations for a rate hike this year," Alex Edwards, head of
the corporate desk at currency transfer platform UKForex in
The pound had gained more than 1 percent, taking it briefly
above $1.70 for the first time since 2009 after BOE Governor
Mark Carney warned last Thursday the bank might raise rates
earlier than markets had previously believed.
(Additional reporting by Patrick Graham in London; Editing by
Mark Trevelyan and James Dalgleish)