* Dollar index up, yen down vs dollar
* Fed speakers maintain case for tighter monetary policy
* UK GDP shrinks less than expected
NEW YORK, Aug 12 (Reuters) - The dollar rallied on Friday
but was set for a weekly drop as traders weighed improving U.S.
inflation data against comments from Federal Reserve officials
who cautioned the battle against rising prices was far from
U.S. import prices declined for the first time in seven
months in July on lower costs for both fuel and non-fuel
products, data showed on Friday, in the third report this week
to hint inflation may have topped out.
Another two key inflation measures, for consumer prices and
producer prices, cooled in July, data on Wednesday and Thursday
showed, prompting traders to pare back views that the Fed will
raise interest rates by 75 basis points for a third consecutive
time when it meets in September.
After four straight down days, including a more than 1% drop
on Wednesday, the dollar rallied against its major rivals on
Friday, but was still on track for a decline of around 0.84 for
At 3:00 p.m. Eastern time (1900 GMT), the dollar index was
up 0.504% at 105.65.
"There's a little bit of anxiety still out there, I believe,
because we need to see more evidence that inflation is I'm not
going to say abating - but peaking," said Amo Sahota, director
at Klarity FX.
The greenback's turnaround followed a steady drumbeat from
Fed officials who made clear they would continue to tighten. San
Francisco Federal Reserve Bank President Mary Daly said on
Thursday she was open to the possibility of another 75 basis
point hike in September.
"The Fed is going to be inclined to push back against the
notion of a premature policy pivot," said Joe Manimbo, senior
market analyst at Convera. "That would threaten to unravel all
of the hard work they've done to bring down inflation."
Traders were pricing in around a 42.5% chance of a 75 bps
Fed rate hike in September and a 57.5% chance of 50 bps.
Kit Juckes, head of FX strategy at Societe Generale, said
dollar trading was likely to remain "choppy".
"It's not going to be going significantly weaker in a
straight line because there's still a danger that the market has
to reprice terminal Fed funds higher, given there's still plenty
of inflation," Juckes said.
The dollar was up 0.39% against Japan's currency, with the
greenback at 133.495 yen.
The British pound fell 0.6% to $1.2141 versus the dollar.
Data showed UK GDP contracted by less than forecast in June,
even though an extra public holiday had been expected to cause a
The euro was down 0.53% at $1.02625. French
inflation was up 6.8% year-on-year in July, while for Spain it
was 10.8%, the highest since 1984, data showed.
The euro has been weighed down by Europe's struggles with
the war in Ukraine, the hunt for non-Russian energy sources and
a hit to the German economy from scant rainfall.
Commerzbank said in a note it had revised its euro-dollar
forecast lower, as it expects a euro-area recession as a base
scenario, having previously been a "risk scenario".
The bank said it expects the euro to fall to $0.98 in
December and to not recover until later in 2023.
The New Zealand dollar was lifted by expectations of a
Reserve Bank of New Zealand rate rise next week.
(Reporting by John McCrank in New York; additional reporting by
Elizabeth Howcroft in London; Editing by Alexander Smith and