* U.S. dollar index at 15-month low
* UK CPI jumps to 4.4 pct, pushes sterling higher
* Yen trading subdued, no intervention seen
(Updates prices, adds comment, changes byline, dateline,
previous LONDON)
By Wanfeng Zhou
NEW YORK, March 22 (Reuters) - The U.S. dollar hit a
15-month low against other major currencies on Tuesday and
could extend losses as a resumption in risk appetite spurred
demand for currencies that offer higher returns.
Expectations of a euro zone interest rate hike next month
lifted the euro to a 4-1/2-month high against the dollar
earlier, but gains were capped by a reported options barrier at
$1.4250 and a sell-off in euro/sterling following a jump in UK
inflation data.
The yen traded in a tight range, hovering around 81 per
dollar. In the near term, analysts said the 80 to 80.85 area
could serve as a floor as markets remained on alert for further
intervention by the Group of Seven nations to counter yen
strength.
Global financial markets stabilized after G7 launched
coordinated yen-weakening intervention last week and euro zone
officials agreed Monday on the setup of the European Stability
Mechanism, or a permanent euro zone bailout fund.
"Generally global policymakers and authorities are really
opening the door to taking on more risk," said Camilla Sutton,
senior currency strategist at Scotia Capital in Toronto.
The dollar index, a measure of the greenback's value
against a basket of six major currencies, fell 0.2 percent to
75.249 <.DXY>, the lowest since early December 2009.
Sterling added 0.4 percent at $1.6381 <GBP=D4>, having
earlier risen to $1.6403, the highest since January 2010.
Euro/sterling was down 0.5 percent at 86.70 pence. <EURGBP=D4>
British inflation last month surged to a 28-month high of
4.4 percent, reviving speculation the Bank of England will not
wait much longer to raise interest rates. For details, see
[]
Money markets are now fully pricing in a quarter-point rate
hike from the Bank of England in July, versus August before the
data.
"In general, the risk is for tighter monetary policy from
the BoE than is currently priced in by the market, and looser
monetary policy from the ECB (European Central Bank) than is
currently priced in by the market," said Paul Robinson, chief
sterling strategist at Barclays Capital.
YEN SUBDUED
The euro remained well supported by comments from ECB
President Jean-Claude Trichet and other ECB policymakers, who
reiterated they were ready to act quickly to guard against
inflation. Most economists expect a rate hike next month.
German two-year bond yields have risen about 30 basis
points over the past week to 1.75 percent, widening the gap
over U.S. Treasury yields to about 110 basis points.
The euro rose as high as $1.4249 <EUR=EBS> on trading
platform EBS, before retreating to 1.4197, down 0.2 percent.
"Euro/dollar is supported after Trichet continued to signal
a rate hike in April and by developments in yields," said Mic
Ingenuus, currency strategist at Nordea in Copenhagen.
"A test of the $1.4283 level is extremely likely in the
next couple of days, if not today."
The euro also drew support from a relatively strong Spanish
T-bill auction, where demand rose and the yield fell compared
with the last sale.
Japan again warned it would act to keep the yen in check,
but traders saw no action in the FX market on Tuesday from
Japanese or other G7 authorities following last Friday's joint
intervention. That resolve could be tested if dollar/yen looks
like it will break back below 80 yen. []
The dollar last traded at 80.95 yen <JPY=EBS>, down
marginally on the day but in the middle of the day's narrow
range of 80.80-81.30 yen.
Yen volatility has eased significantly since late last
week, and some analysts said calmer markets in the coming weeks
would decrease the need for Tokyo to smooth any appreciation in
the Japanese currency, even if the dollar creeps below 80 yen.
(Additional reporting by Jamie McGeever in London; editing by
Jeffrey Benkoe)
