FOREX-Dollar holds near 10-week low ahead of inflation report

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

(New throughout, updates prices, market activity and comments)
By Kate Duguid
NEW YORK, May 11 (Reuters) - The U.S. dollar hit a
2-1/2-month low early in the New York session, then stabilized
around those levels on Tuesday afternoon, the eve of U.S.
consumer price data, as investors bet that rising inflation
could erode the currency's value.
In recent years, rising inflation expectations have helped
the dollar because investors assumed the Federal Reserve would
hike interest rates in response to higher prices. That is no
longer the case.
A disappointing employment report last week triggered a
widespread selloff in the greenback. And though surging
commodity prices have raised concerns of higher inflation,
markets believe the Fed will keep its commitment to low rates
and hefty asset purchases.
"People are fearful that the Fed means what they say. And
what they're saying is - we're not going to raise rates, but
also we're going to let inflation run," said Andy Brenner, head
of international fixed income at NatAlliance Securities.
Against a basket of its major rivals =USD , the dollar
dropped as low as 89.979, its lowest since Feb. 25, and was last
down 0.11% at 90.138.
"Even if we see a print above expectations tomorrow, the
likelihood of a robust dollar rally is very much lessened by the
fact that far fewer market participants expect the Fed to react
to that number in any way," said Karl Schamotta, chief market
strategist at Cambridge Global Payments.
The dollar index's dip under 90 - the first time it fallen
below that level since Feb. 25 - appeared to have prompted some
investors to cover short dollar positions as major currencies
subsequently pulled back, said a note from Action Economics.
Resource-oriented currencies, including the Canadian dollar,
consolidated gains as a rally in commodity prices boosted their
appeal. The loonie CAD=D3 hit a 3-1/2 year high and was last
0.08% higher at C$1.209.
"The economy is performing quite strongly, so that is
supporting expectations for the Bank of Canada to hike ahead of
the Fed," said Karl Schamotta, chief market strategist at
Cambridge Global Payments.
"Friday's (U.S.) employment data helped entrench the
interest-rate differential between the two currencies, so that's
lifting it. But the biggest impact by far is the rise in base
metal prices."
The euro EUR=EBS hit a 2-1/2-month high during the session
and was last up 0.21% at $1.215.
In cryptocurrencies, ether ETH=BTSP dipped from record
levels hit on Monday, but remained up 2.60% on the day to
$4,057. The second-biggest digital token has rallied roughly 46%
so far in May.

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