Dollar extends losses, euro rallies as traders reassess rate hike bets

A picture illustration of U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011. REUTERS/Kacper Pempel/File Photo

Dollar down at two-month lows after Wednesday CPI data
Euro heads for $1.15, strongest since November
Sterling extends rally, shrugs off political uncertainty

LONDON, Jan 13 (Reuters) – The dollar fell further on Thursday to two-month lows after U.S. inflation proved weaker than feared in December, prompting investors to cut crowded long positions in the currency.

The euro was a big beneficiary of the move and extended its rise to $1.1479 , up 0.3% on the day, while sterling and the yen also added to their gains.

December’s monthly U.S. inflation figures published on Wednesday were a fraction higher than forecast and the increase in year-on-year consumer price inflation was as expected at 7% – its biggest jump since June…