(Updated at 1015 EDT/1415 GMT)

By Karen Brettell and Alun John

NEW YORK/LONDON, June 10 (Reuters) - The euro fell

sharply on Monday after gains by the far right in European

Parliament elections on Sunday prompted French President

Emmanuel Macron to call a snap national election.

The uncertainty in France adds one more element to what will

be a busy week for markets with U.S. inflation data due on

Wednesday, the same day as a Federal Reserve policy meeting, and

a Bank of Japan meeting rounding off the week.

The euro dropped 0.6% on the dollar to $1.0735,

its lowest since May 9. It also fell 0.5% on sterling to a near

two-year low of 84.49 pence, and was last down 0.5%

on the Swiss franc at a seven-week low of 0.9632 francs.

The increase in support for right wing parties was

"generally what was expected, but the surprise element is that

Macron has reacted by calling a snap election, so that makes the

market more nervous," said Lee Hardman, senior currency analyst

at MUFG.

The U.S. dollar was also boosted after Friday's jobs report

showed that employers added more jobs than expected in May,

while wages also rose more than anticipated, leading traders to

pare back expectations that the U.S. central bank will cut rates

as soon as September.

"The market was clearly caught wrong footed," said Paula

Comings, head of foreign exchange sales at U.S. Bank in New

York.

Wednesday's consumer price index (CPI) for May will be the

next major data point to drive Fed expectations.

If inflation comes in softer, "the market's going to feel

some relief. I think the dollar could weaken, but probably not

out of its recent range," said Comings. "But on the other hand,

I think if inflation doesn't let up and the number comes in

high, the die is cast to the Fed."

In that scenario, "euro/dollar would continue to trade down

towards the lower end of the range" and it will "impact

(emerging market) currencies disproportionately," Comings said.

Fed officials have said that they want to see several months

of inflation falling back closer to their 2% annual target

before cutting rates.

Economists polled by Reuters expect headline consumer price

inflation to ease to 0.1%, from 0.3% last month, and core price

pressures to remain steady on the month at 0.3%.

Fed policymakers will update their economic and interest

rate projections when they conclude their two-day meeting on

Wednesday.

At the last such release in March, the median projection was

for three 25 basis point cuts this year and investors anticipate

the new forecast will show an expectation of fewer rate

reductions.

The dollar index was last up 0.26% at 105.33, the

highest since May 14.

The paring back of expectations for rate cuts has been

supporting the dollar for much of 2024, with the Japanese yen

the worst performer due to the large interest rate gap between

the U.S. and Japan.

The dollar was last up 0.15% on the Japanese currency at

156.93 yen, having jumped 0.7% on Friday after the

payrolls print.

The Bank of Japan will hold its two-day monetary policy

meeting on Thursday and Friday, with the central bank widely

expected to maintain short-term interest rates in a 0-0.1%

range.

Reuters reported last week that BOJ policymakers are

brainstorming ways to slow its bond buying and may offer fresh

guidance.

In cryptocurrencies, bitcoin gained 0.06% to $69,319.