Investing.com – The U.S. dollar fell on Thursday as investors weighed the competing factors of soft U.S. inflation and a more hawkish Federal Reserve stance.

At 04:25 ET (08:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.3% lower at 104.340, after hitting its highest level since mid-May earlier this week.

The dollar awaits the publication of PPI

On Wednesday, the dollar was characterized by some volatility, falling immediately after the US inflation report, which showed an unchanged month-on-month level in May, compared to market expectations of an augment of 0.1%.

Before recouping some of those losses by leaving the funds rate unchanged at 5.25%-5.5% and detailing that the median forecast by policymakers for the number of cuts this year dropped from three in March to just one.

That said, “we still expect a first rate cut in September and a second rate cut in December,” Goldman economists wrote in a note.

This puts the spotlight firmly on Thursday’s release, with headline data expected to show a monthly gain of 0.1% in May, down from a 0.5% gain in the previous month.

The release, which excludes volatile food and energy prices, is expected to show a monthly augment of 0.3%, down from a 0.5% augment in the previous month.

“Today’s soft PPI reading will raise expectations for the next core PCE reading target of 0.2% month-on-month and give both the Fed and the market a little more confidence that the central bank will be able to cut interest rates in September,” they wrote in a note ING analysts. “That’s why we have a downward arrow on the dollar today.”

The euro is strengthening after further inflation data

rose 0.1% to 1.0812, continuing higher after gaining 0.6% overnight as investors digested more regional inflation data.

decreased by 0.7% in May compared to the same month last year, while in May it increased by 3.6% year-on-year.

“EUR/USD did well to reach 1.0850 yesterday, which likely indicates that we are in some broad trading range of 1.0720-1.0900 in the near future,” ING said.

“The two opposing forces here will be weaker US price and activity data, which could potentially drag the dollar complex down relative to French political risk, where there may still be an additional risk premium built into the euro.”

fell 0.1% to 1.2790, after rising 0.5% overnight to $1.2798 after US inflation data was released and the UK will release its monthly CPI next week.

“The UK May CPI release next Wednesday and the core services sticky component (5.9% year-on-year in April) could decline,” ING said. “We are therefore reluctant to chase the current rise in sterling and it is likely that the top of this year’s range will remain at 1.2850/2900.”

The BOJ meeting is approaching

In Asia, trading rose 0.3% to 157.23, with investors now waiting for further policy signals on Friday.

The central bank is likely to keep interest rates steady but is expected to reduce some of its bond purchases in an effort to tighten policy.

gained 0.2% to 7.2519, near six-month highs, after reports of increased U.S. trade controls with China hurt sentiment toward the yuan this week.