Inflation Concerns Drive The Dollar To A 5-week High, While The Lira Declines

SINGAPORE, May 15 - The U.S. dollar rose to a five-week high against major peers on Monday, buoyed by inflation worries at home and growth concerns globally, though its gains were capped by anticipation the Federal Reserve will cut rates later this year.

The Turkish lira sank to a two-month low after weekend elections looked headed for a runoff, while the Thai baht rallied almost 1% after Thailand's opposition routed military-allied parties also in weekend polls.

The greenback got support from higher Treasury yields after a survey of U.S. consumers' long-term inflation expectations jumped to the highest since 2011, putting a possible Fed rate hike next month back in play, with traders laying down those odds at 11.5%.

Worries over a debt-ceiling standoff on raising the U.S. government's $31.4 trillion borrowing limit also lent some support to the safe-haven dollar.

"Now that the Fed is sort of out of the way, inflation in the U.S. has come in softer than expected. I think markets are pretty much more (comfortable) with the Fed outlook. Now the focus is on the debt ceiling and when the 'X-date' is, and whether or not they could potentially get into a situation of the shutdown," said Khoon Goh, head of Asia research at ANZ.

However, rate cuts are still being priced into the market beginning July through to the year-end, on expectations that policymakers would ease credit conditions in the United States following a rout in shares of regional U.S. lenders, which was triggered by the collapse of Silicon Valley Bank in March.

That limited the dollar's gains, which gave rise to a 0.19% increase in the euro to $1.08695 after the common currency dipped to a five-week low of $1.08445 earlier in the session.

Sterling edged 0.2% higher to $1.24725.

The Aussie rose 0.62% to $0.6683, while the Kiwi gained 0.45% to $0.6219.

"If you remove the uncertainty around the debt ceiling situation, the sentiment has been turning bearish against the dollar," Goh said.

In Asia, China is at the centre of renewed worries about a global recession after a spate of disappointing economic data, including imports and inflation, pointed to tepid domestic demand. More evidence could come from Tuesday's retail sales report.

The Chinese yuan dipped to a fresh two-month low of 6.9749 per dollar in offshore trading on Monday before slightly paring losses to 6.9633.

The People's Bank of China kept its seven-day reverse repo rate unchanged at 2% on Monday.

The dollar index, which measures the currency against six major peers, reached 102.75 for the first time since April 10 in early Asian trading, though later eased 0.11% to 102.58.

The index rallied 1.4% last week.

The 10-year Treasury yield was little changed in Tokyo, hovering around 3.485%.

That kept the pressure on the yen, which tends to move inversely to U.S. long-term yields. The Japanese currency dipped as low as 136.27 per dollar, and was last about 0.3% lower at 136.17 per dollar.

The dollar was last up 0.28% at 19.635 Turkish lira after earlier jumping to 19.70 for the first time since March 10.

Turkey headed for a runoff vote after President Tayyip Erdogan outperformed projections, holding a sizable lead over his rival but falling short of an outright majority.

The U.S. currency sank 0.72% to 33.735 baht in onshore Thai trading, and earlier dipped as much as 0.92%.

Thailand's opposition parties secured a stunning election win on Sunday, but it was far from certain whether they will form the next government, with parliamentary rules written by the military junta.

"It appears that the political stability implied in the 'Goldilocks' outcome may be fuelling the (Thai baht) rally," said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

"The win for Move Forward and Pheu Thai did not upset expectations, and underpins economic optimism about private sector revival."