* Dollar firmer against many of its major counterparts
* Upside inflation surprise helps lift demand for USD
* Market awaits Fed meeting outcome and Yellen's press
* Sterling a shade below 5-year high after soft inflation
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, June 18 The U.S. dollar held onto
modest gains on Wednesday, following its broad strengthening
after U.S. consumer prices had their largest increase in more
than a year in May, sparking speculation the Fed may inch closer
to rate hikes.
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 102.245, while the euro retreated from a
one-week peak hit on Tuesday to $1.3547.
The 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 policymakers 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," she said.
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.
"It's been a while since Yellen's last conference. So
markets will be keen to know what she thinks of the economy
after this inflation data," said Takako Masai, executive officer
at Shinsei Bank.
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
March," they said.
In contrast, minutes of Australia's central bank meeting on
June were more dovish than expected.
Released on Tuesday, the minutes showed policymakers
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.
The British pound also lost steam after data showed British
inflation dropped more than expected in May, tempering
expectations the Bank of England will raise interest rates later
The pound stood flat at $1.6962, off a five-year
high of $1.7011 hit on Monday.
(Editing by Shri Navaratnam and Richard Borsuk)