Investing.com - The dollar traded largely higher against most major currencies on Tuesday after U.S. inflation rates beat market expectations, while soft housing data failed to seriously dent the greenback's advance.
In U.S. trading on Tuesday, EUR/USD was down 0.21% at 1.3544.
The Labor Department reported earlier that the U.S. consumer price index rose 2.1% on year in May and rose 0.4% from April. Consumer prices rose at their fastest pace since October 2008, which sparked demand for the greenback.
Market expectations had been for an annual increase of 2.0% and a monthly rise of 0.2%.
Firming inflation rates should prompt the Federal Reserve to continue winding down its monthly bond-buying program and later raise benchmark interest rates from current record lows as the economy gains steam.
The Fed will conclude a two-day policy meeting on Wednesday, and the U.S. central bank is seen scaling back its asset-purchasing program by another $10 billion, though hikes to benchmark interest rates won't come until sometime in 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 to 1.001 million units, while the number of building permits issued last month fell by 6.4% to 991,000 units, though markets focused on inflation data instead.
Meanwhile in Europe, data revealed 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 German economic sentiment came in at 29.8 this month, down from 33.1 in May and far shy of market expectations for a 35.0 reading. It was the lowest reading since December 2012.
The dollar was up against the yen, with USD/JPY up 0.30% and trading at 102.15 and up against the Swiss franc, with USD/CHF up 0.29% at 0.8997.
The greenback was up against the pound, with GBP/USD down 0.14% at 1.6960.
The pound came under pressure after the Office for National Statistics reported the U.K.'s inflation rate rose 1.5% on year in May and fell 1.8% from April and the lowest reading since October 2009.
Economists were expecting an annual inflation rate of 1.7% and a monthly 0.2% rate.
Core CPI, which strips out food costs, but includes transportation costs, rose 1.6% year-over-year, slightly below expectations of 1.7%.
However, the report also showed that house prices rose 9.9% in April, their biggest annual increase since June 2010, fuelling fears over a bubble in the property market.
Despite the rapid economic recovery in the U.K. low levels of inflation have given the Bank of England leeway to keep interest rates on hold at record lows of 0.5%. But BoE Governor Mark Carney indicated last week that rates could rise sooner than markets expect as the recovery continues to gain momentum.
The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.21% at 1.0867, AUD/USD down 0.66% at 0.9338 and NZD/USD down 0.27% at 0.8653.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.21% at 80.71.
On Wednesday, the dollar will move on the Federal Reserve's announcement on monetary policy.