FOREX-Dollar bounces back ahead of U.S. inflation test

The U.S. dollar bounced back against major peers on Wednesday after weakening over the past three days with investors ramping up bets ahead of U.S. inflation data which may heap pressure on policymakers to raise interest rates from record lows. Falling yields for U.S. Treasuries had put some downward pressure on the dollar lately but a rebound of about three basis points to 1.486% for the 10-year government bond on Wednesday helped prop up the currency.

The U.S. dollar bounced back against major peers on Wednesday after weakening over the past three days with investors ramping up bets ahead of U.S. inflation data which may heap pressure on policymakers to raise interest rates from record lows.

Falling yields for U.S. Treasuries had put some downward pressure on the dollar lately but a rebound of about three basis points to 1.486% for the 10-year government bond on Wednesday helped prop up the currency. "The flattening fury in U.S. bond yields has been replaced by a mild rebound this morning before U.S. CPI", commented Kenneth Broux, an FX strategist at Societe Generale.

"The dollar is better bid after profit-taking of the last three days", he said. The U.S. consumer price index, due later on Wednesday, is predicted by a Reuters poll of economists to come in at an annualized 4.3%, versus the U.S Federal Reserve average annual 2% inflation target.

Fed last week restated its belief that current high inflation is transitory but many investors fear that underestimating the rise in prices could prove a costly policy mistake. At 1205 GMT, the dollar index, which measures the greenback against six rivals, rose 0.33% to 94.279 after falling from a more than one-year peak of 94.634 reached on Friday.

Against Japan's yen, the greenback came off lows last seen since Oct. 11 and rose 0.28% to 113.195 yen. The euro fell 0.39% to $1.1551.

Hammered last week after the Bank of England's surprise decision to keep rates unchanged, sterling retreated 0.41% to $1.3505 but stood well up until Friday's more than one-month low of $1.3425. Fears of potential contagion from China's property market woes also fuelled the search for safer assets.

China's Evergrande faces a deadline on Wednesday to pay an offshore bond, and Kaisa Group pleaded on Tuesday for help to pay loans, workers, and suppliers. The Aussie slid 0.32% to $0.73555 but gradually limited its losses to a 0.07% fall. New Zealand's kiwi dropped 0.54% to $0.7091.

In cryptocurrencies, bitcoin hovered below the all-time high of $68,564.40 marked on Tuesday, last changing hands around $66,725. Ether stayed within sight of Tuesday's record peak of $4,842.65.