* Dollar edges lower after Flynn resigns over Russian
* Sterling hit by inflation numbers
* Yellen to testify to Congress on Tuesday, Wednesday
* French election concerns continue to plague euro
(Recasts with sharp fall in sterling, more quotes)
By Yumna Mohamed
LONDON, Feb 14 The dollar stumbled against major
currencies on Tuesday as investors reined in any expectations
for a March rise in U.S. interest rates and U.S. President
Donald Trump's national security advisor Michael Flynn quit in a
row over Russia.
The euro inched up by 0.2 percent and the yen gained around
a third of a percent in morning trade in Europe, while sterling
was the biggest mover - down more than half a percent after
lower-than-expected inflation numbers.
That all pushed the dollar index back from three-week
highs, down just over 0.2 percent after Flynn's resignation
added to a week which has seen Trump change tack or soften his
message on a number of foreign policy fronts.
Investors worry that points to a less cohesive White House
that may struggle to implement the promises of "phenomenal" tax
reform and public investment that sent the dollar and U.S. stock
markets spiralling higher after Trump's elections.
The prospect of a surge in inflation has spurred
expectations of rises in U.S. Federal Reserve interest rates
this year. But any expectations of one next month have been
trimmed ahead of Fed chief Janet Yellen's testimony in Congress
"We're still early into the new administration so we're yet
to get details of fiscal strategy and that's going to have an
important impact on how the Fed guides policy," said Simon
Derrick, chief market strategist with BNY Mellon in London.
The euro rebounded over 0.7 percent against sterling
after the latter was hit by weaker-than-expected
inflation data that added to some recent worrying numbers for
the British economy.
Consumer prices rose at the fastest pace since June 2014
last month, driven by higher global oil prices and the Brexit
vote-fuelled fall in the pound's value, the official data
But possibly as much of a concern going forward will be the
sharp rises in costs which British producers are having to
swallow due to rising world oil prices and the 20 percent slump
in sterling over the past year.
That comes at a time when political risk is also beginning
to weigh on the euro. There were also worrying dips in German
growth data and sentiment surveys on Tuesday.
"The euro is being propped up by real weakness in the pound
which is allowing it to maintain its gains against the U.S.
dollar," said Kathleen Brooks, research director at City Index.
"While the weaker pound is helping to lift the euro, we also
saw weak data out of the euro zone today which might show that
the European recovery story has hit the skids," she said.
The euro, which has come under pressure in recent sessions
from France's presidential election campaign and Greek bailout
talks, benefitted from dollar weakness and was up 0.2 percent at
Dallas Federal Reserve Bank President Robert Kaplan, a voter
this year on the Fed's policy-setting panel, said on Monday in
remarks prepared for posting to the Dallas Fed website that the
U.S. central bank should act soon to raise rates or risk having
to abandon its plan to do so slowly.
However, interest rate futures show investors pricing in
less than a 1 in 6 chance the Fed will increase rates at its
meeting next month, according to CME Group's FedWatch program.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Yumna Mohamed; Editing by Angus MacSwan)