Dollar slides after tame U.S. inflation data, Tillerson ouster

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The dollar fell against most major currencies on Tuesday after U.S. inflation data for February was in line with expectations, suggesting the Federal Reserve remained on track to raise interest rates at a gradual pace.

The dollar also lost traction after U.S. President Donald Trump fired Secretary of State Rex Tillerson and replaced him with Central Intelligence Agency Director Mike Pompeo, marking the biggest shakeup of the administration's Cabinet.

Pompeo's views typify Trump's hard line stance on international political issues, including the Iran nuclear deal and North Korea's nuclear and missile programs, analysts said.

Investors were bracing for a breakout number in U.S February inflation after a strong figure the previous month and when that did not happen, the dollar pared some of its gains against the yen and fell versus the euro, said John Doyle, director of markets at Tempus Consulting in Washington.

The Labor Department said on Tuesday the U.S. consumer price index rose 0.2 percent last month after jumping 0.5 percent in January. Excluding the volatile food and energy components, the CPI gained 0.2 percent after accelerating 0.3 percent in January.

"The lower inflation readings relative to the previous month decreased expectations that the Federal Reserve will need to raise interest rates faster than anticipated," said James Chen, head of research at Forex.com in Bedminster, New Jersey.

After the data, Fed funds futures data showed a lower chance of a fourth rate hike this year.

In late afternoon trading, the dollar index fell 0.2 percent to 89.694 (.DXY), as the euro gained 0.5 percent on the day to $1.2363.

The dollar also slid against the Swiss franc and the British pound , as well as the Australian and New Zealand dollars .

Tillerson's firing and Pompeo's appointment as his replacement, coming a week after the resignation of U.S. economic adviser Gary Cohn, also weighed on the dollar.

"Pompeo is seen as having a similar anti-globalist perspective to that of Trump," said Chen. "Much of the risk of this hard line stance for the dollar lies in the high likelihood that the top U.S. diplomat will be yet another staunch supporter of Trump's protectionist trade policies."

The greenback gained against the yen, rising 0.1 percent to 106.51 .

The yen came under some pressure from a scandal involving Prime Minister Shinzo Abe. It weakened by 0.3 to 0.5 percent against other major currencies after Japan's ministry of finance said on Monday it altered documents for a sale of state-owned land linked to Abe's wife.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan Oatis and Dan Grebler)