Euro gains on European inflation data, dollar jumps against yen

By Sam Forgione

NEW YORK (Reuters) - The euro rose against the U.S. dollar on Friday after strong euro zone inflation figures, while the dollar edged higher against the yen after U.S. wages data suggested the Federal Reserve would still hike interest rates two more times this year.

Official flash estimates put euro zone inflation at 1.9 percent in the first quarter, on the verge of crossing over the European Central Bank's target of below but close to 2 percent, and above estimates for a rise of 1.8 percent. According to standard EU measures, in Italy it was 2 percent.

That helped drive the euro as high as $1.0947 , just below a 5-1/2-month high of $1.0950 struck earlier in the week.

Analysts said the latest inflation figures could prompt the ECB to take a more hawkish stance in its June statements by either upgrading its assessment of the European economy or suggesting less need for stimulus.

"There was a reminder this morning that maybe inflationary pressures will be coming through and maybe the ECB will have to go away from its super easy policy," said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments.

The dollar rose as much as 0.4 percent against the yen to a session high of 111.71 yen, just below a nearly four-week high of 111.77 touched April 26, after U.S. Labor Department data showed private wages and salaries accelerated 0.9 percent in the first quarter. That marked the largest increase in 10 years.

The data suggested firming inflation and helped boost the dollar even as the Commerce Department said U.S. gross domestic product increased at a 0.7 percent annual rate. That was the weakest performance since the first quarter of 2014.

"The GDP data won’t alter the view that the Fed may raise rates in June and then ultimately again in September," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.

The dollar index (.DXY), which measures the greenback against a basket of six major rivals, was slightly lower at 99.015.

The euro was on track to gain 2.3 percent for the month to mark its second straight monthly rise against the dollar, while the dollar was set to end the month little changed against the yen. The dollar index was set to fall about 1.3 percent to mark its second straight monthly drop.

(Reporting by Sam Forgione; Additional reporting by Patrick Graham in London; Editing by Chizu Nomiyama and Dan Grebler)