FOREX-Dollar in holding pattern, inflation data provides little clarity on rates

(Adds analyst comment in paragraph 3, 8-11, updates prices) By Laura Matthews NEW YORK, May 10 (Reuters) - The dollar remained stable against a basket of currencies on Wednesday as data showed inflation slowed slightly more than expected last month but gave traders little clarity on the U.S. monetary policy outlook. A U.S. Labor Department report on Wednesday showed the annual increase in consumer prices dipped below 5% in April for the first time in two years. An inflation measure closely watched by the Federal Reserve also subsided, which could provide incentive for the central bank to pause further interest rate hikes next month. But with inflation still above the Fed's 2% target, rates may need to stay high for some time to tame it. "The market is of the view that the Fed will be cutting rates sooner and faster than most other central banks. The data are showing some tentative signs of validating those expectations of divergence, but are not clear in suggesting that even faster or deeper cuts are needed," said Alvise Marino, macro trading strategist at Credit Suisse in New York. "When markets are looking for big things to happen, and the actual outcomes are not as shocking, expectation of future volatility tends to fall." The dollar index in afternoon trading was at 101.48, up 0.1% after hitting a low of 101.21 earlier. The euro was trading 0.15% higher at $1.0979 while sterling was flat at $1.2624 against the greenback. The Japanese yen held to gains and was last seen at 134.25 as the dollar slipped 0.73%. Fed funds futures traders are pricing in a pause before expected rate cuts in September. The Fed's target range stands at 5% to 5.25%. But Amo Sahota, director at Klarity FX in San Francisco, believes the near 80-basis-point cut that markets are pricing in by the end of this year "looks a little aggressive".

"I think what the data does say is the Fed can afford to be on pause and not have to raise interest rates. I don't think this is giving us the real green light to say that there will be aggressive rate cuts. We've got another inflation read before the next Fed meeting in June. So, that's going to provide a better focal point going right into the meeting," said Sahota.

The U.S. will report initial jobless claims and producer price data on Thursday, which could reinforce recent signs of a softening labor market and cooling inflationary pressures from wages. And Sahota said the escalating U.S. debt-ceiling tension presents "a real danger that is not being priced in that aggressively in the marketplace."

Meanwhile, in cryptocurrencies, bitcoin rose 0.24% to $27,730 after dipping almost 3% earlier in the session.

======================================================== Currency bid prices at 3:30PM (1930 GMT) Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change

Session
Dollar index 101.4100 101.6200 -0.20% -2.010% +101.8000 +101.2100 Euro/Dollar $1.0983 $1.0961 +0.21% +2.51% +$1.1007 +$1.0940 Dollar/Yen 134.3100 135.2400 -0.69% +2.44% +135.4650 +134.1200 Euro/Yen 147.51 148.21 -0.47% +5.14% +148.6700 +147.0500 Dollar/Swiss 0.8891 0.8907 -0.17% -3.84% +0.8927 +0.8868 Sterling/Dollar $1.2628 $1.2622 +0.06% +4.44% +$1.2680 +$1.2603 Dollar/Canadian 1.3373 1.3382 -0.06% -1.30% +1.3414 +1.3335 Aussie/Dollar $0.6778 $0.6762 +0.27% -0.54% +$0.6818 +$0.6745 Euro/Swiss 0.9764 0.9760 +0.04% -1.32% +0.9776 +0.9744 Euro/Sterling 0.8696 0.8687 +0.10% -1.67% +0.8700 +0.8673 NZ $0.6366 $0.6335 +0.46% +0.23% +$0.6381 +$0.6324 Dollar/Dollar
Dollar/Norway 10.5000 10.5610 -0.46% +7.11% +10.5750 +10.4460 Euro/Norway 11.5278 11.5844 -0.49% +9.85% +11.6107 +11.4760 Dollar/Sweden 10.2220 10.2047 +0.42% -1.79% +10.2531 +10.1640 Euro/Sweden 11.2285 11.1812 +0.42% +0.71% +11.2415 +11.1705

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates Euro bulls go all-in ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Laura Matthews; Additional reporting by Amanda Cooper in London and Rae Wee in Singapore; Editing by Sharon Singleton, Kirsten Donovan, Richard Chang and Cynthia Osterman)