Investing.com - The U.S. dollar pulled back from three-week lows against the Canadian dollar on Tuesday and gained ground against the other major currencies after data showing an uptick in underlying inflation in the U.S. boosted the outlook for higher interest rates.
USD/CAD was last at 1.2514, up from a three-week trough of 1.2431 ahead of the inflation data.
The greenback strengthened after official figures on Tuesday showed that U.S. consumer prices rose 0.2% in February, in line with market expectations, rebounding after a 0.7% decline in January.
On a year-over-year basis the U.S. consumer price index was flat after slipping 0.2% in January.
The report showed that gasoline prices rose 2.4%, the largest increase since December 2013, snapping seven months of declines.
Core inflation, which excludes food and energy costs ticked up 0.2% in February after a similar gain in January. Core inflation was up 1.7% from the same month last year, the largest increase since November.
The uptick in underlying inflation indicated that the Fed would still have leeway to tighten monetary policy even with inflation running below target.
San Francisco Fed President John Williams said Tuesday that the bank should start raising rates earlier and added that the fall in energy prices and the stronger dollar would only have a short term impact on inflation.
The dollar has weakened since the Fed indicated last week that it may raise interest rates more gradually than markets had expected.
On Monday, Federal Reserve Vice Chair Stanley Fischer the central bank is "widely expected" to begin raising interest rates this year though the policy path remains uncertain.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last up 0.17% to 97.4, off lows of 96.58. The index ended last week down 2.53%, the biggest weekly loss since October 2011.