The greenback slid in Asian trading on Wednesday local time after two top Federal Reserve officials offered different views about the need for further interest rate hikes.
The U.S. dollar index, which measures the currency's performance against six major peers, fell by 0.05 percent to 102.07. It continued the fall from the previous session when the index lost 0.16 percent to 102.31.
After hitting a one-week low at the beginning of the week, the sterling rose 0.04 percent to $1.2432. Meanwhile, the euro traded 0.1 percent higher to $1.0924.
The U.S. dollar weakened against the Japanese yen, falling by 0.06 percent to 133.62. Earlier in Monday's Asian trading, the greenback hit its one-month high of 33.87 yen. Analysts explained that the yen's upward momentum showed the easing selling pressure on the Japanese currency.
The Australian dollar also rose by 0.07 percent to $0.6658, while the New Zealand dollar traded 0.05 percent higher to $0.6195.
Analysts said forex investors were anticipating the Fed's next policy move, which would determine the trend in the U.S. dollar. Chicago Fed President Austan Goolsbee and Philadelphia Fed President Patrick Harker offered their outlooks on the central bank's policy on Tuesday.
Goolsbee said the Fed should be "cautious" in determining its future action due to recent banking stresses. The U.S. banking sector was volatile last month when two regional lenders, Silicon Valley Bank and Signature Bank, suddenly shut down due to liquidity issues, with analysts saying the Fed's tight monetary policy had a role in their downfall.
“At moments of financial stress like this, the right monetary policy is really caution and watchfulness and prudence.”
Austan Goolsbee, President of Chicago Federal Reserve
The central bank needs to monitor the situation on the market as banking turmoil usually leads to tighter credit conditions, said Goolsbee, adding the situation could create headwinds that hampered the authorities' efforts to tame inflation.
On the other hand, Harker said he favored raising the benchmark interest rate to above five percent and maintaining it at that level for a while. Harker argued that while recent data had shown signs of slowing inflation, disinflation was still "proceeding slowly."
The policymaker acknowledged that it takes up to 18 months for monetary policy actions to manifest their full effect in the economy. Harker said officials needed to "look closely" at available data to determine whether they should take additional steps to curb inflation.
U.S. to publish March's CPI
The U.S. government will publish March's consumer price index or CPI on Wednesday, which analysts say will influence financial markets.
"It will be a bit like Friday's nonfarm payrolls, where not much happens until the data, and when the data comes out, you get all sorts of reactions," Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia, said.
Economists forecast March's headline inflation to come in at 5.2 percent year-over-year, a significant fall from six percent recorded the month before. However, core inflation will likely rise to 5.6 percent on an annual basis and 0.4 percent on a month-over-over basis.
UBS senior economist Alan Detmeister said rental prices still became a major issue in the CPI. Rents, which constitute 40 percent of core CPI, still increased quickly. Detmeister said other housing market data had shown signs of disinflation in the sector — but not CPI.
According to analysts, higher-than-expected consumer price growth may prompt the Fed to hike the interest rate in the next policy meeting. The market predicts a 74 percent chance that the Fed will hike the interest rates by 25 basis points next month. However, it is also likely that the central bank will perform multiple rate cuts by the end of the year.