LONDON  - The dollar edged lower 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 signaling 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 dollar or the kiwi dollar.

On Friday, the Australian dollar/Swiss franc cross was up a quarter of a percent. The Kiwi dollar gained 0.3% to $0.6665.

The euro EUR=EBS got a boost from a selloff in the German bond market, rising 0.1% to $1.1270.

Comments by Chicago Fed President Charles Evans scheduled later on Friday and New York Fed President John Williams on Monday will provide a chance to gauge how dovish the central bank is, said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

"If these Fed officials are not as dovish as 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."


(Reporting by Saikat Chatterjee, additional reporting by Shinichi Saoshiro in Tokyo; editing by Larry King) ((; +44-20-7542-1713; Reuters Messaging: