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Dollar down against won after US-Korea FX talks

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Fed officials cite need for more data

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Dollar retreats for second straight session

(Updates to US morning trading)

By Chuck Mikolajczak

NEW YORK, May 14 (Reuters) - The U.S. dollar fell on

Wednesday, adding to a drop in the prior session after

weaker-than-expected U.S. consumer inflation data as investors

await signs that global trade battles will continue to ease.

The dollar index began the week with a jump of more than 1% on

Monday and hit a one-month high as the United States and China

reached a deal to temporarily cut reciprocal tariffs and tamped

down concerns that a trade war between the world's two biggest

economies could lead to a global recession.

But the greenback fell on Tuesday after a gauge of consumer

prices was below economists' expectations as declining food

costs partially offset rising rents.

"What we've seen over the past, well, ever since the Fed

stopped lowering rates, has been a great sensitivity in the

markets, especially the currency markets, to inflation data,"

said Joseph Trevisani, senior analyst at FX Street in New York.

"We're moving from concern about the inflation rate in the

U.S., which continues to move in the right direction, and

perhaps reviving growth."

The dollar index, which measures the greenback against a

basket of currencies, fell 0.25% to 100.73, with the euro

up 0.25% at $1.1212.

In light of the easing trade tensions, markets have dialed back

expectations for rate cuts from the U.S. Federal Reserve this

year, pricing in a 74% chance for the first cut of at least 25

basis points (bps) at the central bank's September meeting,

according to LSEG data, compared with the prior view for a cut

in July.

Several major brokerages, including Goldman Sachs, JPMorgan and

Barclays, have recently scaled back their U.S. recession

forecasts and their view of Fed policy easing.

Chicago Fed President Austan Goolsbee said data showing

temperate consumer inflation in April does not necessarily

reflect the impact of rising U.S. import tariffs, and the Fed

still needs more data to determine the direction of prices and

the economy.

Fed Vice Chair Philip Jefferson noted a similar sentiment,

saying the recent inflation data indicated good progress towards

the central bank's 2% goal, but the outlook is now uncertain due

to the possibility that new import taxes will drive prices

higher.

Against the Japanese yen, the dollar weakened 0.89% to

146.16 while sterling eased 0.1% to $1.3291.

Investors were also digesting news South Korea's Deputy Finance

Minister Choi Ji-young met with Robert Kaproth of the U.S.

Treasury on May 5 to discuss forex markets, which helped send

the dollar to its lowest in a week against Korea's won.

The won strengthened 1.53% against the dollar to

1,394.64.

Goldman Sachs analysts said in a note to clients that while

details of the meeting are scarce and talks may be part of an

ongoing dialogue, "it puts renewed focus on the scope for

undervalued trade surplus currencies to appreciate in a weaker

dollar environment."

Markets will closely watch Thursday's U.S. data on the labor

market, another inflation gauge and a reading of consumer

health, as well as comments from Fed Chair Powell.