The U.S. dollar edged lower in early European trade Thursday ahead of a key U.S. inflation release, while the euro rebounded after weakness inspired by Italian banking woes.

At 03:15 ET (07:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 102.245 but remains on course for a fourth straight weekly gain.

The dollar remains near five-week highs, but traders have banked some recent gains ahead of the release of the latest U.S. consumer price index reading.

The headline annual CPI figure is forecast to pick up slightly in July to 3.3%, while the core rate, which excludes volatile food and energy prices, is forecast to climb 4.8% on an annual basis.

The Federal Reserve next meets in September and a subdued inflation release could cement expectations that the policymakers will agree to end its interest rate hikes.

Fed policymakers have hinted at this earlier this week, with Philadelphia Fed President Patrick Harker suggesting interest rates are high enough already, echoing the view of Atlanta Fed President Raphael Bostic.

EUR/USD rose 0.2% to 1.0999, helped by improved risk sentiment after the Italian government clarified its stance on a windfall bank tax, saying it would not amount to more than 0.1% of their total assets.

Elsewhere, GBP/USD gained 0.1% to 1.2732, while USD/JPY rose 0.2% to 143.95, with the yen near a one-month low, even as data showed that producer inflation rose slightly more than expected in the 12 months to July.

The yen remains pressured by expectations that the Bank of Japan will be slow to exit stimulus, even with the Federal Reserve close to ending its rate-hiking cycle.

USD/CNY fell 0.1% to 7.2054 after the People's Bank of China set a stronger-than-expected daily midpoint. Media reports also suggested that the Chinese government had begun selling dollars on the open market to buoy the yuan this week.

Source : Investing.com