* Dollar cuts losses after U.S. housing starts data 
    * Focus on Fed meeting next week
    * Sterling rises as UK inflation hits 30-year high
    * Euro supported after 10-year German Bunds briefly turn positive

 
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 19 (Reuters) - The dollar slid on Wednesday, with U.S. Treasury yields retreating as well
after hitting roughly two-year peaks on 2-year and 10-year notes, but the greenback remains well-supported
as investors prepared for a widely expected interest rate increase in March.
    U.S. 10-year Treasury yields touched a new two-year high of 1.902% on Wednesday, but was
last down 4 basis points at 1.8271%.
    Bond yields in other major economies rose as well, with the euro, sterling, the Canadian, Australian,
and New Zealand dollars, among others, gaining versus the U.S. currency.
    Sterling, meanwhile, rose after data showed British inflation rose 5.4% in December, its highest level
in 30 years, raising rate hike expectations. Talks of a leadership challenge to Prime Minister Boris
Johnson, however, have kept the pound in check.
    "Central banks are now getting evidence that Q4 did not necessarily slow the pace of inflation and in
fact, places like the U.K. are experiencing CPI numbers not seen since the early 1990s," said Juan Perez,
senior FX trader and strategist, at Monex USA in Washington.
    "We see the buck gaining short term, but do not sleep on other currencies as the pricing in of Fed hikes
becomes an after-thought," he added.
    The Fed will meet next week and will likely provide clarity and details on the end of quantitative
easing, possibly in March. The U.S. central bank could also signal it will raise interest rates in March as
well, right after ending QE.
    Fed funds futures have fully priced in a rate hike in March and four in all for 2022.
    In afternoon trading, the dollar index was down 0.2% at 95.528.
    The greenback trimmed losses after data showed U.S. homebuilding unexpectedly increased in December amid
unseasonably mild weather. Housing starts rose 1.4% to a seasonally adjusted annual rate of 1.702 million
units last month.
    The euro, the largest component in the dollar index, was up 0.2% at $1.1348, after the
previous day's sharpest daily drop in a month. 
    The single European currency was underpinned overall after Germany's 10-year bond yield rose above 0%
for the first time since 2019 on Wednesday, marking a potential turning point for euro area debt
characterized for years by negative yields.
    The German 10-year yield, considered a benchmark for the whole euro zone, rose as high as 0.025%, and
was last little changed on the day at -0.007%.
    The euro, meanwhile, dropped to a 23-month low versus sterling after the red-hot UK inflation data. It
was last flat at 83.29 pence. Against the dollar, the pound rose 0.2% to $1.3624.
    The pound was also supported by the surge in UK yields, with the two-year gilt yield rising
to 0.958%, its highest level since March 2018.
    The Australian dollar rose 0.5% to US$0.7224.
    The U.S. dollar edged 0.2% lower versus the Canadian currency to C$1.2492 after Canada's annual
inflation rate climbed to a 30-year high of 4.8% in December.
    
    ========================================================
    Currency bid prices at 3:10PM (2010 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct       High Bid    Low Bid
                                              Previous                   Change                   
                                              Session                                             
 Dollar index                 95.5070        95.7140     -0.21%         -0.163%       +95.7920    +95.4940
 Euro/Dollar                  $1.1352        $1.1327     +0.22%         -0.15%        +$1.1357    +$1.1319
 Dollar/Yen                   114.2400       114.5900    -0.31%         -0.76%        +114.7850   +114.2050
 Euro/Yen                     129.67         129.79      -0.09%         -0.50%        +129.9800   +129.4000
 Dollar/Swiss                 0.9153         0.9175      -0.25%         +0.34%        +0.9177     +0.9145
 Sterling/Dollar              $1.3626        $1.3598     +0.22%         +0.76%        +$1.3648    +$1.3588
 Dollar/Canadian              1.2491         1.2513      -0.17%         -1.20%        +1.2524     +1.2450
 Aussie/Dollar                $0.7225        $0.7186     +0.54%         -0.61%        +$0.7238    +$0.7177
 Euro/Swiss                   1.0391         1.0391      +0.00%         +0.21%        +1.0403     +1.0375
 Euro/Sterling                0.8330         0.8328      +0.02%         -0.83%        +0.8342     +0.8314
 NZ                           $0.6796        $0.6765     +0.44%         -0.72%        +$0.6811    +$0.6764
 Dollar/Dollar                                                                                    
 Dollar/Norway                8.7610         8.8125      -0.58%         -0.54%        +8.8220     +8.7490
 Euro/Norway                  9.9445         9.9682      -0.24%         -0.68%        +9.9947     +9.9215
 Dollar/Sweden                9.0959         9.1357      -0.21%         +0.86%        +9.1551     +9.0906
 Euro/Sweden                  10.3256        10.3476     -0.21%         +0.90%        +10.3686    +10.3160
 
    
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Joice Alves in London; Editing by Kevin
Liffey,  Jonathan Oatis and Chizu Nomiyama)