* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, July 12 (Reuters) - The dollar fell for a third consecutive day on Friday as stronger-than-expected U.S. inflation data failed to shake convictions that the Federal Reserve will start cutting interest rates at a policy meeting later this month.
Against a basket of other currencies, the dollar fell 0.1% to 96.94 and was on track for its biggest weekly drop in three weeks.
The core U.S. consumer price index, excluding food and energy, rose 0.3% in June, the largest increase since January 2018, data on Thursday showed.
The reading pushed U.S. Treasury yields higher, but money markets still indicated one rate cut at the end of July and a cumulative 64 basis points in cuts by the end of 2019.
"Cutting interest rates when inflation data is weakening makes sense, but signalling a dovish stance when inflation is rising is a bit weird and suggests there are political pressures weighing on the Fed," said Ulrich Leuchtmann, the head of currency research at Commerzbank.
The dollar's weakness revived carry trades, where hedge funds borrow in low-yielding currencies such as the Swiss franc and the euro to purchase higher-yielding ones such as the Australian or New Zealand dollars.
On Friday, the NZ dollar gained 0.3% to $0.6665.
Other currencies which benefited from a weaker dollar were in markets whose central banks signalled a relatively confident outlook to interest rates.
The Canadian dollar was one such beneficiary: the loonie rallied to a 10-month high versus the U.S. dollar after Canada's central bank said this week it had no intention of easing monetary policy even as it highlighted the risks that trade wars posed to the global economy.
Higher oil prices also helped the Canadian dollar.
Sweden's crown also benefited from a relatively optimistic assessment of its economic outlook after minutes of the central bank's policy meeting.
The euro trimmed earlier gains after European Central Bank Governing Council member Ignazio Visco said on Friday the ECB will need to adopt further expansionary measures if the euro zone economy does not pick up and will consider its options "in the coming weeks".
The single currency was flat at $1.1258, below an intraday high of $1.1275 in early London trading.
Market attention will be focused on comments by Chicago Fed President Charles Evans later on Friday and New York Fed President John Williams on Monday which will provide a chance to gauge how dovish the U.S. central bank will be.
"If these Fed officials are not as dovish as (Federal Reserve Chair Jerome) Powell, and if the New York Fed's manufacturing survey on Monday proves stronger than forecast, they could show that the dollar weakening in response to Powell's congressional testimony was overdone," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.
Powell indicated again on Thursday that an interest rate cut from the U.S. central bank is likely at its next meeting later this month as businesses slow investment due to trade disputes and a global growth slowdown.
(Reporting by Saikat Chatterjee; Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Catherine Evans)
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