US dollar rate index news: The dollar was steady on Wednesday in cautious trading ahead of US inflation data due later this week that is likely to influence the Federal Reserve's policy.

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In the currency market, the dollar remained on the front foot, with the dollar index, which measures the US currency against six rivals, last at 102.53, after gaining 0.215 per cent on Tuesday.

The index is up 1 per cent this month, after dropping 2 per cent in December as traders reassess how steep and early the rate cuts from the Fed are likely to be.

The Fed's surprising dovish tilt in December, when it projected 75 basis points (bps) of rate cuts in 2024, turbo-charged market expectations of easing with traders last month anticipating as much as 160 bps of cuts.

Markets have since reassessed the chances and currently are pricing in 140 bps of cuts this year.

Traders are focused on the release of the US consumer price index report on Thursday to help predict the likelihood of a March rate cut. The report is expected to show headline inflation rose 0.2 per cent in the month and by 3.2 per cent on an annual basis. 

Fed funds futures indicate a 64 per cent probability of the Fed easing in March versus 80 per cent a week earlier, the CME FedWatch tool showed.

Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia, said May was more likely to be the start of a US rate cut cycle because the labour market is tight and inflation remains above the Fed's 2 per cent target.

A reassessment of the predicted start of the rate cut cycle could support the US dollar in the coming months, he said.

In other currencies, the euro was down 0.05 per cent to $1.0926, while sterling was last at $1.2709, up 0.03 per cent on the day. The Japanese yen weakened 0.19 per cent to 144.74 per dollar.

The Australian dollar rose 0.16 per cent to $0.669.

Australia's inflation slowed to a near two-year low in November and core inflation also eased sharply, a softer-than-expected result that reinforced market expectations interest rates would not need to rise any further.

The New Zealand dollar eased 0.02 per cent to $0.624.