SINGAPORE, May 24 Reuters The dollar on Wednesday held just shy of a twomonth high as U.S. debt ceiling negotiations dragged on, while the pound firmed and then softened after strongerthanexpected British inflation data.

Also in focus was the New Zealand dollar, which dived 1.8 after the country39;s central bank flagged an end to rate hikes.

The dollar index which tracks the U.S. currency against six major peers was flat at 103.5, just below Tuesday39;s 103.65, its highest since March.

The impasse in Washington over debt ceiling negotiations has helped lift the dollar, even though it could lead to a default and push the country into recession, as investors reckon that could spell worse trouble for the global economy.

Treasury Secretary Janet Yellen has warned that the federal government could no longer have enough money to pay all its bills as soon as June 1, raising the risk of a damaging default.

Investors largely shunned riskier investments as another round of talks between the White House and the Republicans to raise the borrowing limit ended on Tuesday with no sign of progress.

Strongerthanexpected economic data and hawkish remarks from Federal Reserve policy makers have also supported the dollar as markets reassess earlier bets for U.S. rate cuts later in the year.

Markets are pricing in a 27 chance of a 25 basis point hike in June, CME FedWatch tool showed, after the Fed39;s quarter point increase earlier this month.

Investors will get more clues on policy…