NEW YORK: The dollar retreated on Wednesday after Federal Reserve Chair Jerome Powell on Tuesday said that rising inflation is likely temporary and showed no signs of being in a hurry to tighten monetary policy.

The dollar jumped after the Fed surprised markets on June 16 by saying that policymakers are forecasting two interest rate hikes in 2023.

But Powell on Tuesday said that prices are rising due to a "perfect storm" of rising demand for goods and services and bottlenecks in supplying them as the economy reopens from the pandemic and that those price pressures should ease on their own.

"Dollar gains have faded after Mr. Powell downplayed higher inflation lasting for very long," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.

That said, "if we see signs of inflation pushing further higher, I think that could go some way in stirring inflation jitters all over again and putting the focus on Fed policy," Manimbo said.

Producer price inflation data on Friday is this week's US economic focus, with other releases including jobless claims on Thursday and consumer spending on Friday.

The 7.5 million jobs still missing from the onset of the pandemic remains a "benchmark" for the US Federal Reserve, and the central bank should avoid tightening policy too soon during the fight to regain them, Atlanta Fed president Raphael Bostic said on Wednesday.

Inflation driven by the quick reopening of the US economy could take "some time" to ease, Federal Reserve Governor Michelle Bowman said on Wednesday, adding a note of caution about the durability of price increases Fed officials have largely characterized as temporary.

The dollar index was last down 0.21% at 91.551. It fell to a session low after data showed that a measure of US factory activity climbed to a record high in June.

The euro rose 0.18% to $1.962.

Data on Wednesday showed that euro zone business growth accelerated at its fastest pace in 15 years in June following the easing of more lockdown measures.

The Japanese yen also fell after data showed factory activity expanded at the slowest pace in four months in June.

The dollar gained 0.11% to 110.77 yen, after earlier reaching 111.10 yen, the highest since March 2020.

Currencies correlated to the global economic cycle, including the Kiwi dollar and Norway's crown, outperformed on Wednesday.

Elsewhere, bitcoin was up around 5% on the day, above the $34,000 mark after dropping to as low as $28,600 on Tuesday - its lowest since January.