FOREX-Dollar dips as rate outlook lifts euro

(Recasts, updates prices, adds byline)

* Dollar softens as headline inflation slows

* Euro at three-week high amid talk of ECB rate hike

* Uncertainty surrounds both Fed, ECB rate outlook

By Steven C. Johnson

NEW YORK, May 20 (Reuters) - The dollar fell on Tuesday as U.S. inflation data added to concerns about the economy's strength and raised doubt about whether the Federal Reserve will be able to hike interest rates this year.

Surging German producer prices, on the other hand, lifted the euro, which hit a three-week high at $1.5674 <EUR=> after the head of a German think tank said he expected euro zone interest rates to soon rise.

"The inflationary pressures in Europe are relentless, and that's driving the euro higher," said Boris Scholossberg, senior currency strategist at DailyFX.com in New York.

He said that a weaker-than-expected 0.2 percent rise in U.S. producer prices last month adds to the concern sparked by a recent survey showing U.S. consumer sentiment at its lowest level since 1980. For details, see [ID:nN19391102].