* Dollar firmer against many of its major counterparts
* Upside inflation surprise helps lift demand for USD
* All eyes on Fed meeting outcome and Yellen's press
By Ian Chua
SYDNEY, June 18 The U.S. dollar held onto modest
gains early on Wednesday, having risen broadly after U.S.
consumer prices recorded their largest increase in more than a
year in May.
The dollar index last stood at 80.607, having climbed
0.2 percent on Tuesday. Against the yen, the greenback reached a
one-week high of 102.25, while the euro retreated from a
one-week peak to $1.3547.
U.S. consumer price index rose 0.4 percent, double what
economists had expected, raising the risk that a separate
inflation gauge watched by the Fed also pushed higher in May.
The data came as U.S. Federal Reserve policy makers prepared
to conclude a two-day meeting.
"Almost all measures of U.S. price pressure are rising, and
the CPI shows the clear upswing," said Emma Lawson, senior
currency strategist at National Australia Bank in Sydney.
"With the U.S. labour market improving, and the Fed's other
mandate being stable prices, these type of inflation pick-ups
will make it difficult for the Fed to ignore."
The Fed is widely expected to chop another $10 billion from
its monthly bond purchases, but is considered unlikely to make
other concrete policy moves. The focus will be on Fed Chair
Janet Yellen's press conference for any clues to longer-term
plans for rates.
A recent Reuters poll found a majority of Wall Street's top
bond firms don't see the Fed raising rates before the second
half of next year.
Any indication that rates might be lifted sooner could spark
a rally in the U.S. dollar.
"Our economics team expects the Fed will, in fact, deliver a
more hawkish message," analysts at BNP Paribas wrote in a note
"The statement is likely to upgrade views on inflation and
the labour market and the projections of future Fed funds rates
are likely to show a creep higher relative to those presented in
In contrast, minutes of Australia's central bank June 3
meeting were more dovish than expected.
Released on Tuesday, the minutes showed policy makers
predicted subpar economic growth for the whole year ahead and
reiterated the central bank's preference to keep interest rates
low for some time to come.
That knocked 0.7 percent off the Australian dollar, which
dipped to $0.9337, about a full cent off a two-month
peak hit just a week ago.
Traders see initial support in the 0.9320/30 zone, an area
that provided a base in early May and then turned resistance
after the Aussie broke decisively lower in mid-May. The level
also represents the 50 percent retracement of its most recent
rally from $0.9229 to $0.9348.
There is little in the way of major economic data out of
Asia on Wednesday, leaving the focus firmly on the outcome of
the Fed meeting.
(Editing by Shri Navaratnam)