FOREX-Dollar higher after inflation data, Iran ceasefire eyed

(Updates to morning New York trading)

* Trump casts doubt on ceasefire after rejecting Tehran proposal

* Eyes on Trump-Xi meeting later in the week

* US inflation rises more than expected, CPI up 3.8% year-on-year

* Markets price out Fed rate cuts, odds of December hike increase

By Chuck Mikolajczak

New York, May 12 (Reuters) - The U.S. dollar advanced for a second straight session on Tuesday, after U.S. economic data showed inflation accelerated at a brisk pace, while uncertainty over the durability of a ceasefire in the Iran war also boosted the safe-haven greenback.

The Labor Department said the Consumer Price Index (CPI) increased 0.6% last month, matching the estimate of economists polled by Reuters, after surging 0.9% in March.

In the 12 months through April, the CPI advanced 3.8%, marking the biggest year-on-year increase since May 2023 and a touch above the 3.7% forecast, after a 3.3% rise in March.

"This report suggests that unless energy prices begin to move much lower from present levels, that inflation is likely to accelerate to even higher heights in the coming months," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"And certainly, it means that the new Fed chairman will have his hands tied to the point that he's not likely to lower rates anytime this year."

The dollar index, which measures the greenback against a basket of currencies, rose 0.37% to 98.33, on track for its biggest daily percentage gain since April 2, with the euro off 0.38% at $1.1737.

Markets have largely priced out any chance of a rate cut from the Federal Reserve this year, while expectations for a hike of at least 25 basis points at the central bank's December meeting rose to 31.3% from 23.6% in the prior session, according to CME's FedWatch Tool. Kevin Warsh, U.S. President Donald Trump's pick to be the next chair of the Federal Reserve, on Monday cleared a key procedural hurdle in the Senate, moving him closer to Senate confirmation and a smooth handoff from Fed Chair Jerome Powell, whose leadership term ends on Friday.

TRUMP SAYS IRAN DEAL 'ON LIFE SUPPORT'

After a sharp rise in March as the war between the U.S. and Iran began, the dollar had retreated in April on optimism a deal to end the war could be reached. Hopes for a peace deal on Iran faded on Tuesday, however, after Donald Trump said a ceasefire with Iran was "on life support" as Tehran rejected a U.S. proposal to end the conflict and stuck to a list of demands the U.S. president described as "garbage." U.S. crude rose 3.32% to $101.33 a barrel and Brent rose to $107.62 per barrel, up 3.27% on the day as the latest stalemate stoked supply concerns.

JAPAN MOVES TO SUPPORT YEN Against the yen, the dollar strengthened 0.28% to 157.59. The Japanese currency had jumped suddenly earlier on Tuesday, stoking speculation of a "rate check," which is often a precursor to currency intervention. U.S. Treasury Secretary Scott Bessent said the U.S. and Japan believe that excess volatility in the currency market is undesirable, comments seen as offering some support to Tokyo's recent round of intervention to prop up the yen.

Japan intervened to prop up the currency two weeks ago, two sources familiar with the matter told Reuters. Sterling weakened 0.65% to $1.3521 as British Prime Minister Keir Starmer defied calls to resign, telling ministers he would get on with governing despite a "destabilizing" 48 hours of growing calls to set out a timetable for his departure after a drubbing in local elections.

The dollar edged up 0.01% to 6.792 versus the offshore Chinese yuan ahead of talks between Trump and Chinese President Xi Jinping in Beijing this week. Trump said on Monday he would discuss the topic of arms sales to Taiwan and the case of jailed media tycoon Jimmy Lai and would also have a discussion about Washington's support for Taiwan's defense.

(Reporting by Chuck Mikolajczak; Additional reporting by Stephen Culp in New York, Stefano Rebaudo in London and Ankur Banerjee in Singapore; Editing by Sonali Paul, Kevin Liffey, Alexander Smith and Andrea Ricci )