* Dollar jumps ahead of U.S. inflation data
* Aussie boosted after central banker keeps quiet on recent
* Yen posts modest losses vs dollar, euro
* EU foreign ministers meeting eyed for message to Russia
(Recasts with dollar gains, new quotes)
By Patrick Graham
LONDON, July 22 The dollar rose to its strongest
against the euro in almost six months on Tuesday ahead of U.S.
inflation numbers for June which should add to a picture of
growing divergence between the U.S. and European economies.
The data, due at 1230 GMT, is expected to show consumer
prices in the United States rose by just over 2 percent last
month, roughly stable and in line with the Federal Reserve's
target but dwarfing almost zero price growth in the euro zone.
That would support economists' arguments that U.S. interest
rates are certain to rise much earlier than those in Europe,
raising the premium for holding dollars and at some stage
pulling the dollar higher.
"Yield spreads have been moving against the euro for some
time and probably this is a trend that is likely to continue,"
said Lee Hardman, a strategist with Bank of Tokyo Mitsubishi-UFJ
"This move today is more technical than anything else. $1.35
looks like a bit of a pivot point and the pressure against the
euro has been building."
The euro was down 0.3 percent on the day against the dollar,
with traders citing support at $1.3475. The single currency was
last weaker than that level in November of last year.
The U.S. currency was similarly higher against the Swiss
franc, both a safe haven for money worried by events in
Ukraine and Gaza in recent days and a huge gainer over the past
five years. The dollar traded at 0.9012 francs, helping push the
index to its highest since early June.
COME ON AUSSIE COME ON
The threat of a new and deeper round of sanctions against
Russia over its involvement in Ukraine has been hanging over the
euro in particular. EU foreign ministers meet on Tuesday to
decide how precisely to deploy sanctions agreed 10 days ago.
The number of Russian individuals and companies to be
penalized is unclear so there is scope to adopt a tougher
posture, but that is expected to stop short of the sweeping
sectoral moves being called for by Washington.
"The best case scenario for markets is if soft diplomacy is
the preferred course of action amid hopes that the threat of
harsher actions could encourage cooperation," analysts from
French bank Credit Agricole said in a morning note.
"In the near-term, any flare-up in tensions is likely to
spur support for the dollar and the yen."
A gain for the Australian dollar had been the main move on
developed currency markets in Asian time, after the country's
central bank chief said he was happy with current interest rate
levels and made no attempt to talk down the currency.
The Aussie has gained steadily since hitting an almost
four-year low at the start of this year, driven by signs of
improvement in its domestic economy and an easing off, at least
for now, of nerves over Chinese growth.
Governor Glenn Stevens, who has in the past engaged in
verbal intervention to support growth, said he was content with
the current level of interest rates, prompting markets to pare
back slightly bets on another cut in rates this year. Data on
Wednesday is also expected to show inflation topping its 2-3
"Governor Stevens chose not to talk down the currency, as
has been the central bank's wont in past months, and that
boosted the Australian dollar," said Jane Foley, a strategist at
Rabobank in London.
"That said, I doubt the bank feels particularly confident in
the Australian economy's recovery as yet. Until we see greater
signs of capital investment coming through, the Aussie will be
vulnerable at these levels."
The Aussie traded 0.2 percent higher at $0.9392.
(Editing by Catherine Evans)