The dollar was higher after key data released this afternoon revealed that core US inflation figures rose above expectations in June, increasing the chances that the Federal Reserve will raise interest rates further. The dollar was at highs not seen since end-April against the euro and yen. Official data revealed that core CPI inflation, which excludes energy and food, rose by 0.3 pct in June from May, above expectations for a more moderate 0.2 pct rise. The headline CPI rate meanwhile rose by 0.2 pct from May, in line with expectations, and by 4.3 pct year-on-year. "Market participants have increased the odds for another rate hike in August based on the higher-than-expected core CPI reading today," said Michael Carey, economist at CALYON. Market focus will now turn to Fed chairman Ben Bernanke's testimony, scheduled for 3 pm BST. His words will be carefully picked for hints about the Fed's thinking on inflation. Since the market is far from pricing in a further quarter-point hike in the Fed Funds rate to 5.50 pct from 5.25 pct at present, any hint that this may be a possibility should support the dollar. At present, the Fed is in a difficult place. Core inflation is running higher than the Fed's comfort levels but price pressures are predicted to ease as GDP growth slows. "It will be instructive to see how the Fed chairman characterizes the near-term inflation data in today's question and answer session in Washington," said Carey. Bernanke's testimony should provide fresh clues on whether US interest rates will rise any further. Elsewhere, the pound weathered news that UK rate-setters voted unanimously to leave interest rates unchanged in July as market focus stayed on yesterday's much stronger-than-expected inflation data. In the minutes to its July meeting, the Bank of England's Monetary Policy Committee said the outlook for inflation had not changed much since its previous meeting in June as it left the benchmark repo rate at 4.50 pct for the 11th month running. However, the MPC would not have had access at the time to the June inflation figures which were publicised yesterday to reveal a massive 2.5 pct jump in annual inflation, immediately increasing talk that interest rates could be heading higher in the coming months. "The MPC will be ever more alert for signs that second round effects are developing, and the odds that interest rates will rise before the end of the year have shortened markedly," said Howard Archer at Global Insight. The pound initially fell on the news that no member had opted for a hike but soon reversed those losses to move back up again.