The dollar hovered around multi-week lows against the euro and sterling on Wednesday, after unexpectedly soft U.S. inflation data cemented the view that the Federal Reserve will not raise interest rates later in the day.

China's yuan sagged to its weakest in over six months after the central bank cut rates, and as speculation mounts that more stimulus is on the way to support the sputtering post-COVID economic recovery.

The dollar index - which measures the performance of the U.S. currency against six others - dipped 0.2% to 103.14, after touching its lowest since May 22 overnight at 103.04.

In April, the U.S. consumer price index (CPI) logged its smallest year-on-year increase since March 2021 at 4.0%.

The euro has been steadily clawing back from 2-1/2 month lows in late May and was last up 0.1% at $1.0805. The European Central Bank (ECB) delivers its decision on rates on Thursday, with a quarter-point hike to 3.50% widely expected. Its policymakers have been clear that inflation across the euro zone is too high and the central bank has more work to do.

Sterling rose 0.3% to trade at a one-month high of $1.265, on track for a 1.1% gain over the last two days.

The dollar eased 0.14% to 139.98 yen , retreating from a one-week high the day before. The Bank of Japan is expected to retain its ultra-easy policy settings on Friday.

Source : Reuters