Investing.com - The dollar eased against the other major currencies on Wednesday, but remained close to seven month highs hit in the previous session on heightened expectations for a rate increase by the Federal Reserve next month.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slid 0.15% to 99.56, holding just below Tuesday’s highs of 99.84, the strongest since April 13.
Demand for the dollar continued to be underpinned by expectations that the Fed will hike rates before the years end.
Data on Tuesday showing that U.S. inflation rose in October following two straight months of declines hardened the view that the economy is on a strong enough footing for higher interest rates.
The Commerce Department said the annual rate of inflation rose 0.2% last month, while consumer prices were also up 0.2% from a month earlier.
The dollar turned slightly lower overnight as U.S. Treasury yields slid amid an increase in safe haven demand after a bomb scare in Germany triggered fears of another attack just days after the deadly terror attacks in Paris.
USD/JPY dipped 0.13% to 123.27, off Tuesday’s one-week highs of 123.48.
The euro gained ground, with EUR/USD rising 0.29% to 1.0672, but gains were held in check by the diverging monetary policy outlook between the Fed and the European Central Bank.
The ECB is expected to expand its quantitative easing program and possibly cut rates further into negative territory at its December meeting.
The euro also remained under pressure amid concerns that the terrorist attacks in Paris could undermine the already fragile economic recovery in the region.
Investors were looking ahead to the minutes of the Fed’s October meeting, due out later in the day, for further indications on the prospects for a December rate hike.
Meanwhile U.S. data on housing starts and building permits would give some perspective on the strength of the housing sector.