The U.S. dollar drifted lower on Wednesday in thin rangebound trading, with investors looking ahead to Thursday's U.S. consumer prices report for indications on where the Federal Reserve's monetary policy is headed.

The greenback posted steeper losses earlier in the session, particularly after data showing the Chinese economy slipped into deflation last month. That raised the chances of China launching additional stimulus measures and nudged investors into risk assets.

The dollar index , which measures the performance of the U.S. currency against six others, slipped 0.1% to 102.46, partly reversing Tuesday's rise.

The euro rose 0.2% to $1.0976, while sterling slid 0.2% to $1.2721.

European markets gained after equities tumbled the day before as the Italian government announced a surprise 40% windfall tax on banks.

Italy's finance ministry subsequently clarified that the one-off measure, which targets gains from banks' higher interest rates, would not amount to more than 0.1% of their total assets.

Against the yen, the dollar rose 0.2% to 143.70 yen

Source : Reuters