The dollar drifted lower on Wednesday, with investors cautious ahead of minutes from the Federal Reserve which could signal if it will raise interest rates next month. As an erratic Chinese stock market stoked fears about the stability of the world's second-largest economy, investors sought refuge in the safe-haven Swiss franc, which hit its highest level for almost two weeks against the euro.
The dollar has surged by almost 20 percent against a basket of major currencies in the past year as expectations have grown that the Fed will raise rates for the first time in almost a decade. The Fed releases the minutes from its latest policy meeting at 1800 GMT. "Since most of the majors have gone through some major shifts, from the commodity complex to the China devaluation, we are largely focused on Fed policy events and US economic data and how they translate into Fed policy," said Mark McCormick, currency strategist at Credit Agricole in New York.
Traders on Wednesday largely shrugged off US consumer price inflation data, one of the week's potentially more influential economic reports that showed shop-level prices rising a slight 0.1 percent in July. "There is little in the current report to dissuade any FOMC members from taking rates off the zero bound," said strategist Gennadiy Goldberg at TD Securities in New York. "The low inflation profile will certainly keep the Fed communicating a gradual glide path."
The dollar index traded in a tight 40-basis-point range and was last was 0.1 percent lower on the day. The euro traded up 0.20 percent at $1.1041 as a diminished appetite for risk drove investors who had held euro-funded positions in emerging market currencies to buy back the single currency.
Against the Swiss franc, the euro was 0.4 percent lower at 1.0740 francs. The dollar was down 0.02 percent against the yen at 124.35 yen, while off slightly against the British pound at $1.5649. The Bank of England is expected to follow the Fed with a hike, and that view was bolstered on Tuesday by higher-than-expected core UK inflation numbers.