The U.S. dollar retreated in early European trade Tuesday, with risk sentiment helped by China's short-term lending rate cut, although the upcoming U.S. inflation data and Federal Reserve policy meeting has resulted in a degree of uncertainty.

At 03:15 ET (07:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% lower to 102.888, falling to levels last seen in mid-May.

USD/CNY rose 0.1% to 7.1548, with the yuan retreating to a six-month low after the People's Bank of China cut its seven-day reverse repo rate by 10 basis points to 1.90% from 2.00%, its first such rate cut since the bank trimmed its Loan Prime Rate in August 2022.

Focus now turns to the latest release of U.S. consumer prices later Tuesday, which is expected to show inflation cooled slightly in May and could give the Fed room to pause its aggressive rate-hike cycle when it announces its interest rate decision on Wednesday.

EUR/USD rose 0.3% to 1.0793, after German consumer prices were confirmed at 6.1% on the year for May.

Elsewhere, GBP/USD rose 0.4% to 1.2563, with Bank of England officials pointing to further interest rate hikes if inflation remains elevated.

USD/JPY drifted lower to 139.53, with the Bank of Japan expected to maintain its ultra-loose monetary policy later this week, while risk-sensitive AUD/USD rose 0.3% to 0.6774.

Source : Investing.com