The U.S. dollar edged lower in early European trade Wednesday, handing back recent gains ahead of the release of minutes from the last Federal Reserve meeting, while sterling gained despite U.K. inflation slowing sharply.

At 03:00 ET (07:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 102.962, not far removed from the 1½-month high of 103.46 seen earlier this week.

Dollar drifts lower ahead of Fed minutes
The dollar climbed higher Tuesday with the release of stronger than expected U.S. retail sales for July, indicating that American consumers have proven to be resilient despite inflation that has raised the price of household goods such as food and fuel.

That added more fuel to the debate on what the Federal Reserve’s next move on interest rates will be, with most still expecting the U.S. central bank to pause on another rate hike when it next meets in September.

The next important clue into officials’ thinking on where interest rates should go comes with the minutes of its July meeting later in the session, and traders appear to be keen to go into this release in a more neutral position, hence today’s dollar selling.

U.K. inflation drops sharply but remains elevated
GBP/USD rose 0.2% to 1.2730, even as U.K. inflation slowed in July to its lowest annual rate since February 2022. The headline annual rate fell to 6.8% from June’s 7.9%, moving further away from October’s 41-year high of 11.1%.

This will be welcomed by the Bank of England, but this still leaves inflation more than three times higher than its 2% medium-term target, and thus more interest rate increases seem likely.

Additionally, data released Tuesday showed that basic wages in Britain rose 7.8% in June, a new record growth rate, adding to long-term inflation pressures even after 14 back-to-back increases in interest rates.

Euro edges higher ahead of GDP release
EUR/USD rose 0.2% to 1.0924, ahead of the release of second quarter growth figures for the eurozone. These are expected to show that gross domestic product climbed 0.3% on the quarter, a small improvement from the previous quarter’s flat growth.

However, industrial production is expected to drop 0.1% on the month in June, a 4.2% annual drop, suggesting the region’s industrial base remains under pressure.

Elsewhere, USD/CNY rose 0.2% to 7.2964 after data showed that Chinese house prices declined in July, raising more concerns over the country’s flailing property sector.

USD/JPY fell 0.1% to 145.38, with the yen helped by Tuesday’s strong Japanese growth numbers, but it remains not far from its recent nine-month low against the dollar.

The yen crossed the 145 level this week, which is expected to potentially attract intervention by the Japanese government to support the falling currency.