By Peter Nurse
Investing.com - The U.S. dollar edged lower in early European trade Wednesday, as traders cautiously await the release of the latest U.S. inflation data which could influence future Federal Reserve monetary policy.
At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.700.
EUR/USD rose 0.2% to 1.0930 and GBP/USD traded 0.1% higher at 1.2431 in tight trading ranges.
The main focus Wednesday will be the March U.S. CPI, as traders try to work out the U.S. central bank's next move.
The general perception is that the Fed has one more increase of 25 basis points left in its rate-hiking cycle in May, before starting to cut interest rates later in the year.
Philadelphia Fed Bank President Patrick Harker said on Tuesday that he felt that the end of rate hikes may be near, while New York Fed President John Williams noted that further decisions depended on incoming data.
The CPI index is due at 08:30 ET (12:30 GMT) and is expected to come in at 5.1% year-on-year, down from 6.0% previously, while the all-important core inflation, which excludes volatile food and energy prices, likely ticked higher to 5.6% on an annual basis, up 0.4% on the month.
Also of interest will be the release of the minutes from the last Fed meeting, which could reveal the thinking of the policymakers as they hiked rates by 25 basis points last month in the midst of a banking crisis.
"Any signs that the Fed is very close to a peak in rates – and that it will have the ability to cut rates if need be – would be seen as risk-positive and dollar negative," said analysts at ING, in a note.
Elsewhere, the risk-sensitive AUD/USD rose 0.1% to 0.6655, while USD/JPY edged lower to 133.60, just below a one-month high, with traders contrasting the likely tightening by the Fed with new Bank of Japan Governor Kazuo Ueda vowing to stick with ultra-easy stimulus settings at his inauguration.