LONDON, June 1 Reuters The euro steadied on Thursday near a twomonth low after data showed euro zone inflation eased more than expected last month, backing arguments for only cautious further rate hikes by the European Central Bank ECB.

Inflation in the 20 nations sharing the euro eased to 6.1 in May from 7.0 in April, below expectations for 6.3 in a Reuters poll of economists.

The euro flattened at 1.0690, towards a twomonth low of 1.0635 touched on Wednesday, as the ECB could be under less pressure to extend its monetary tightening much further with inflation showing signs of subsiding.

The ECB has raised base rates by a combined 375 basis points to 3.25 over the past year to combat runaway prices.

Money markets are pricing in an 85 chance of a 25 bps hike by the ECB when it meets on June 15.

Commerzbank said with inflation easing, the market is no longer certain whether there will be two 25 bps rate steps. That makes life difficult for the euro at present, said Antje Praefcke, FX Analyst at Commerzbank.

ECB VicePresident Luis de Guindos said on Thursday that the central bank has already gone through most of its monetary policy tightening though the cycle is not quite over yet.

DOLLAR KING

The dollar rose after a vote of approval from the U.S. House of Representatives to suspend the debt ceiling, though the greenback drifted from a twomonth high as investors trimmed bets the Federal Reserve will raise interest rates this month.

The divided U.S. house on…