Investing.com - The dollar moved higher against a basket of other major currencies on Tuesday, as stronger than forecast U.S. inflation data boosted expectations for a more hawkish stance on interest rates from the Federal Reserve.
USD/JPY was up 0.33% to session highs of 102.17.
The Labor Department said U.S. consumer prices rose at an annual rate of 2.1% last month, while prices were up 0.4% from a month earlier. It was the fastest increase in annual inflation since October 2008.
Market expectations had been for an annual increase of 2.0% and a monthly rise of 0.2%.
An uptick in inflation levels would give the U.S. central bank less leeway to keep interest rates on hold at record lows as the economic recovery continues to gain momentum.
Investors were looking ahead to the outcome of the Fed’s two-day policy meeting on Wednesday, as they awaited fresh indications on the timing of possible interest rate increases.
The Fed was expected to scale back its asset purchase program by another $10 billion, but is not expected to raise borrowing costs until mid-2015.
A separate report showed that both U.S. housing starts and building permits fell in May, pointing to underlying weakness in the housing sector.
The Commerce Department reported that housing starts dropped by 6.5% last month to1.001 million units, while the number of building permits issued last month fell by 6.4% to 991,000 units.
EUR/USD was down 0.24% to 1.3540, holding above the four month trough of 1.3502 struck earlier this month.
Earlier Tuesday, a report showed that German economic sentiment deteriorated unexpectedly in June, reflecting the recent slowdown in the German economy after a strong start to the year.
The ZEW index of economic sentiment came in at 29.8 this month, down from 33.1 in May. It was the lowest reading since December 2012.
Elsewhere, GBP/USD slipped 0.11% to 1.6963, not far from the five year peak of 1.7011 set on Monday. The pair briefly touched session lows after official data on Tuesday showed that the annual rate of inflation in the U.K. fell to the lowest level in four-and-a-half years in May.
The annual rate of U.K. inflation slowed to 1.5% last month, down from 1.8% in April. However the data did little to dampen expectations that the Bank of England will raise interest rates sooner than expected.
The dollar extended gains against the Swiss franc, with USD/CHF rising 0.32% to 0.8999.
The Australian dollar was weaker, with AUD/USD dropping 0.70% to 0.9333 after the minutes of the Reserve Bank’s June meeting indicated that rates are likely to remain on hold for some time in order to support economic growth.
Meanwhile, NZD/USD was down 0.30% to 0.8649 and USD/CAD rose 0.17% to 1.0861.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, rose 0.22% to 80.73.