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Dollar down 1.2% on won after US-Korea FX talks

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CPI data adds to case for Fed to resume rate cuts

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Markets watch developments in China trade talks

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Dollar down about 3% since Trump's 'Liberation Day'

tariffs

(Updates moves, adds analyst comment)

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, the pound rose

0.34% to $1.2249 and the dollar eased 0.77% against the

Japanese yen to 146.33.

That left the dollar index, which tracks the unit against

six main peers, down 0.45% at 100.

"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.

Versus China's yuan, the dollar gained 0.14% to 7.2067 in

offshore trading, 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.