By Nimesh Vora

MUMBAI, July 16 (Reuters) - The Indian rupee is set to open weaker on Wednesday after June U.S. inflation data hinted at tariff-driven price pressures, prompting markets to scale back bets of Federal Reserve rate cuts and pushing the dollar and U.S. yields higher.

The 1-month non-deliverable forward indicated an open in the 85.96-85.98 range versus 85.81 on Tuesday. The rupee has repeatedly avoided breaching the 86 level the last three sessions.

The question is whether the USD/INR can finally break through the 86–86.10 zone and push higher, said a currency trader at a Mumbai-based bank.

"There's little doubt that stop losses - both corporate and interbank - will be triggered if we see a decisive break past 86."

DOLLAR CLIMBS, U.S. YIELDS RISE

The dollar index =USD rose 0.5% to its highest in three weeks on Tuesday, while the 30-year Treasury yield inched past 5% after U.S. inflation data indicated evidence of tariff impacts.

Prices increases across an array of goods drove inflation higher in June in what economists see as evidence of the Trump administration's increasing import taxes passing through to consumers.

U.S. consumer prices rose 0.3% in June, a roughly 3.5% annual rate, after a 0.1% increase in May.

In its daily market update, Morgan Stanley said that U.S. inflation is beginning "to show signs of tariff pressure".

Markets have digested tariff inflation effects and appear to "seemingly brace for the Fed to remain on hold for longer", it added.

Odds of a Fed rate cut in September fell after the data, with markets now pricing in 44 basis points of cuts this year, down from more than 50 bps before the data. Expectations of a July cut, already minimal, declined further.

"The increased uncertainty about tariffs and the extension of the trade talks deadline to 1 August suggest the Fed will need a few more months of data before cutting the policy rate," ANZ Bank said.

KEY INDICATORS:

** One-month non-deliverable rupee INRNDFOR= forward at 86.08; onshore one-month forward premium at 10 paise

** Dollar index =USD up at 98.60

** Brent crude futures LCOc1 up 0.3% to $68.9 per barrel

** Ten-year U.S. note yield at 4.48%

** As per NSDL data, foreign investors sold a net $91.8 million worth of Indian shares on July 14

** NSDL data shows foreign investors sold a net $30.7 million worth of Indian bonds on July 14

(Reporting by Nimesh Vora; Editing by Sumana Nandy)

((nimesh.vora@thomsonreuters.com))