* Dollar index on pace to snap 4-day losing streak
* Pound reverses course, rises on Brexit deal report (Updates prices, market activity; adds analysts' comments)
By Saqib Iqbal Ahmed
NEW YORK, Oct 12 (Reuters) - The dollar was poised to narrowly ward off a fifth straight day of losses against a basket of currencies on Thursday, as investors looked ahead to inflation data on Friday that may provide more clues on the next U.S. interest rate hike.
"The move in the dollar index this week is primarily a correction to the big move that we had in September," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
"It's largely corrective as the market awaits fresh signals."
The index, which logged it's first monthly gain in seven months in September, rose to more than a 10-week high last week, after U.S. wage data for September was seen as a sign that inflation might come off a recent period of weakness.
Traders will now focus on U.S. consumer price data due on Friday. The minutes from the last Federal Reserve meeting showed many policymakers still felt another rate increase this year "was likely to be warranted," but several said additional tightening depended on upcoming inflation data. Fed has raised rates twice this year.
Financial markets are pricing a roughly 88 percent probability of a rate hike in December, according to CME Group's (NASDAQ:CME) FedWatch tool.
On Thursday, the greenback found some support after the Labor Department said its producer price index for final demand increased 0.4 percent last month after rising 0.2 percent in August. data showed applications for unemployment benefits dropped to a more than one-month low last week as the boost to claims in Texas and Florida from Hurricanes Harvey and Irma continued to unwind.
Given the storms, "I would take some of the numbers that are coming out this month with a grain of salt, knowing that there is some opaqueness in what's going on," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.
Meanwhile, sterling jumped by more than a cent to reach an eight-day high against the dollar, with analysts citing a report in Germany's Handelsblatt newspaper that the European Union could offer Britain a two-year transitional Brexit deal. pound had earlier tumbled after the EU's chief Brexit negotiator, Michel Barnier, told reporters that talks around Britain's divorce payment had become deadlocked.
Sterling was up 0.31 percent at $1.3262.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic: World FX rates in 2017
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