NEW YORK: The dollar fell against other major currencies on Wednesday on news that US inflation slowed more than expected, increasing the likelihood that the Federal Reserve could pause its interest rate hikes.

US Labor Department data showed April inflation cooled to 4.9%, the smallest year-over-year increase in two years. However, so-called core inflation remained sticky at 5.5%, suggesting interest rates may need to stay high for some time to tame it.

“The US dollar did soften modestly on the news that core US CPI inflation edges a little lower in April. However, the data provides little by way of resolution for Fed hawks and doves,” said Jane Foley, head of FX strategy at Rabobank London.

“At 5.5%, core CPI inflation is well above the 2% target and does little to alter our house view that the Fed will be unable to cut interest rates this year.”

Following the data, the euro rose 0.24% to $1.0987 while sterling was up 0.14% to $1.2640.

The Japanese yen was last seen at $134.50 as the dollar slipped 0.52%.

Against a basket of currencies, the dollar index fell 0.2% to 101.38 after hitting a low of 101.21.

“There’s continued angst in the market that the Fed isn’t finished hiking rates,” said Adam Button, chief currency analyst at Forexlive.

Economists polled by Reuters expected core US consumer prices to rise 5.5% on a year-on-year basis for April.