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* Dollar steady as markets keep focus on Iran conflict

* Investors wary of Trump's rhetoric, still hope for a deal

* Higher gas prices seen limiting euro gains

By Stefano Rebaudo

July 16 (Reuters) - The dollar hovered near its one-month

low on Thursday as investors weighed subdued U.S. inflation

data, which dampened rate-hike expectations, against the risk of

a further oil price spike that could support the greenback.

U.S. Treasury yields fell on Wednesday after a second

consecutive day of data pointed to moderating inflation

pressures, undermining expectations for a Federal Reserve

tightening move and support for the greenback.

The U.S. economy is less exposed to energy shocks than many

of its peers, helping attract safe-haven flows into the dollar

when oil prices rise, often at the expense of the euro and yen.

Conversely a diplomatic breakthrough in the Middle East

tends to weaken the greenback against both currencies as lower

oil prices improve the outlook for energy-importing economies.

Some investors said current flare-ups in tensions with Iran

were intended to gain leverage in negotiations, and that the

situation could ultimately be de-escalated once the United

States had secured a stronger negotiating position.

"The market also takes note of the fact that Trump's

threats, rhetoric and deadlines are rarely fulfilled," Jens

Magnusson, chief economist at SEB, said.

"When the price gets too high, primarily for oil and petrol,

he backs down and the price falls back," he added.

Oil prices turned lower on Thursday as traders took profits

while assessing the risks from a new wave of U.S. strikes on

Iranian military installations.

The U.S. dollar index, which tracks the currency

against six peers, was little changed at 100.48, hovering near

its lowest since June 18. It has fallen 0.8% over the previous

two sessions and is on track for a weekly decline.

Chances for a Fed hike in July were slashed to 11%, versus a

45% implied probability at the start of the week. Markets still

see even odds of at least a 25 basis-point increase in

September, according to Fed funds futures prices via CME Group.

The euro was little changed at $1.1469. Investors

are closely monitoring European gas futures, which

have risen to their highest levels since March, stoking concerns

that higher energy costs could weigh on the euro zone economy

and limit further appreciation of the euro.

Sterling held near a two-month high at $1.354, little

changed after economic data, with investors expecting that

Britain's incoming prime minister will pick a fiscally

conservative finance minister.

YEN UNDER THE SPOTLIGHT

The yen hovered near multi-decade lows, with attention on

potential moves by Japan's Government Pension Investment Fund

(GPIF) after Finance Minister Katsunobu Kato said last week the

government wants a "substantial" increase in domestic asset

investment.

The dollar rose 0.10% to 162. It hit a

multi-decade high at 162.84 early this month.

"GPIF's discussion signals that official-sector capital

allocation is becoming an active policy tool rather than a

long-term aspiration," Geoff Yu, senior EMEA macro strategist at

BNY, said.

"Investors should treat this as the start of a multi-year

structural theme, extending well beyond Japan," he added.

Analysts argued that GPIF has the greatest capacity among

Japanese investors to influence the forex market. GPIF conducts

a strategy review every five years and completed its latest one

in 2025. However, it can still adjust its holdings within its

target allocation bands.

The Australian and New Zealand dollars

were both down about 0.1%, at $0.6995 and $0.5842 respectively.