TOKYO (Reuters) – The dollar held firm near a 10-day high on Friday boosted by expectations U.S. inflation will pick up, although concerns about an escalation in U.S.-China trade tensions limited the greenback’s gains.

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

The dollar index against a basket of major currencies .DXY held gains made since early this week on Friday, changing hands at 94.867.

It had risen as high as 94.941 in late trade the previous day, its highest since July 3, before bouncing back slightly as worries about deepening trade friction between Washington and Beijing capped gains.

The greenback was supported in part by a report of U.S. consumer prices on Thursday which showed a steady buildup of inflation pressure that could keep the Federal Reserve on a path of gradual interest rate increases.

“The continued upward trend in core CPI inflation, which rose from 2.2 percent to 2.3 percent in June, keeps the Fed on track to raise interest rates twice more this year,” wrote Andrew Hunter, U.S. economist at Capital Economics in London.

The dollar hit a fresh six-month high against the yen JPY= of 112.71 early on Friday, gaining 0.2 percent. It had broken through the 112-yen barrier earlier in the week for the first time since Jan. 10.

The main focus on Friday is on China’s trade data, which is due about 0200 GMT and comes ahead of its second-quarter gross domestic product data on Monday.

As the dollar held firm, the euro EUR= remained sluggish, trading at $1.1665, moving further off a 3-1/2 week high of $1.17905 touched on Monday.

The British pound GBP=D3 remained weak, falling 0.2 percent to $1.317, its lowest level since July 3, before bouncing back slightly to $1.3178 as investors remained on edge about the resignation of two key euroskeptic ministers, stoking fears of a “hard Brexit”.

“The instability of the British government is the main reason for the pound’s weakness. Two ministers stepped down, raising the prospect of a ‘hard Brexit’ and putting pressure on the pound,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“Given the discontent and grumbling within the conservative party, the position of (Prime Minister Theresa) May is becoming precarious,” he said.

Editing by Sam Holmes

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