As Fed clues are sought, the dollar rebounds from its one-year high before CPI data, while CBOE data pushes it back up from a one year high
On Wednesday, the dollar slid from a one-year high to regain its support against major peers, ahead of U.S. consumer price data that could provide additional clues on when the Federal Reserve will ease stimulus and raise interest rates.
The dollar index, which measures the greenback against six rivals, fell 0.18% to 94.358 from Tuesday, when it reached 94.563 for the first time since late September 2020.
The dollar in the United States decreased 0.13% to 113.465 yen, down from a three-year high of 113.785 Yen reached in earlier sessions.
The euro climbed 0.18% to $1.1551, following Tuesday's $1.001522, its lowest level in nearly 15 months.
"The CPI is going to be really important, so there may be a little positioning ahead of that," said Joseph Capurso, formerly of Commonwealth Bank of Australia in Sydney.
The risk is that inflation will remain high, which would put forward market expectations for the timing and pace of rate hikes, and that would help the US dollar." "It's been a little bit off today, but I think the dollar has more upside."
The dollar gained on Tuesday, despite rising expectations that the Federal Reserve will announce a tapering of stimulus next month, with interest rate hikes expected to follow next year.
Three Fed policymakers, including Vice Chair Richard Clarida, said overnight that the United States' economy has healed enough to begin to curb the central bank's asset-purchase policy. Money markets valued a 50-50 chance of reducing interest rates by July, with the exception of Vice Chairman Richard Klarido.
Meanwhile, a rise in energy prices has fueled inflation fears and sparked speculation that the Fed may need to act sooner to normalise policy than officials had anticipated.
"CPI is the major economic draw" on Wednesday, and "has the potential to see Fed rate hike expectations move again, one way or another," said Ray Attrill, national Australia Bank's head of foreign exchange strategy in Sydney.
Most Fed policymakers continue to believe inflationary pressures will be temporary.
Governors Lael Brainard and Michelle Bowman are among the Fed officials scheduled to address later Wednesday, when the minutes of the central bank's September meeting are due to be released.
Sterling climbed 0.19% to $1.36135, but it remained in the middle of the month's range.
The Aussie dollar dropped 0.19% to $0.73375, retracing from Tuesday's one-month high of $0.7484.
Bitcoin traded around $56,200, after hitting a five-month high of $57,855.79 at the start of the week.