FOREX-Dollar extends losses, Korea's won in focus

By Kevin Buckland and Linda Pasquini

TOKYO, May 14 (Reuters) - The U.S. dollar extended losses on Wednesday following its biggest decline in more than three weeks overnight after weaker-than-expected U.S. consumer inflation data bolstered the case for Federal Reserve easing just as global trade tensions cool.

U.S. data showed the consumer price index increased by 0.2% last month, below expectations of economists polled by Reuters for a 0.3% gain, after a 0.1% dip in March.

The euro was up 0.5% at $1.1240 EUR=EBS, the pound rose 0.34% to $1.2249 GBP=D3 and the dollar eased 0.77% against the Japanese yen to 146.33. JPY=EBS

That left the dollar index, which tracks the unit against six main peers, down 0.45% at 100. =USD

"The greenback has not held on to post-trade-deal gains for long," ING FX strategist Francesco Pesole wrote in a note to investors.

While a soft CPI was the trigger for the correction, a weakening in the dollar shows "a clear preference" for strategic selling of the currency ahead of a potential deterioration in U.S. data, Pesole said.

The dollar index rose 1% on Monday and touched a one-month peak on investor hopes a de-escalation in U.S.-China trade tensions would avert a global recession.

But it shed 0.8% on Tuesday after the CPI data, and is some 3% below its level on April 2, when Trump announced his "Liberation Day" tariffs, triggering a flight by overseas investors from U.S. stocks and bonds.

U.S. President Donald Trump said in a Fox News interview that he could see himself dealing directly with Chinese President Xi Jinping on the final details of a trade deal.

The impact of trade deals on currency markets could be far reaching, particularly between the U.S. and some Asian countries that may have to address Trump's long stated concerns about trading partners keeping their currencies deliberately weak.

Korea's won strengthened after a South Korea government official said Deputy Finance Minister Choi met with Robert Kaproth of the U.S. Treasury on May 5 to discuss forex markets.

The dollar was last down 1.2% at 1398 won. KRW=

Versus China's yuan, the dollar gained 0.14% to 7.2067 in offshore trading CNH=D3, after touching a six-month trough at 7.1791 yuan on Tuesday.

Thursday is the next significant day for events, with April's U.S. retail sales, PPI and a speech from Fed Chair Powell.

The U.S. central bank has adopted a wait-and-see stance as it gauges the economic impact of the U.S. tariff campaign.

More clarity over Trump's often erratic trade edicts could lead the Fed to resume interest rate cuts.

Traders price in about 54 basis points of rate reductions between now and the end of the year, according to LSEG data, and expect the next quarter-point cut in September.