The US dollar fell against the euro and the Japanese yen on Wednesday, after hitting multi-week highs the previous day. The decline followed US data showing inflation driven by tariffs, prompting investors to scale back bets on interest rate cuts by the Federal Reserve.

Rising prices for a range of goods including coffee, audio equipment, and home furniture contributed to an increase in June inflation, with significant hikes recorded for heavily imported items.

This initially strengthened the dollar and pushed US yields higher, though the 10-year Treasury yield later fell by one basis point in London trading to 4.48%, down from Tuesdays peak of 4.491% the highest level since June 11.

Investors are now pricing in about 44 basis points of rate cuts by the Fed by December, down from more than 50 basis points earlier in the week.

Against the yen, the dollar slipped 0.1% to 148.65, after reaching a three-and-a-half-month high of 149.19.

The euro ended a five-day losing streak, rising 0.20% to $1.1625. The British pound also climbed 0.15% to $1.3405, after touching a three-week low the previous day.

Tiffany Wilding, economist at PIMCO, said: The rise in goods inflation linked to tariffs justifies the Feds cautious stance, while the continued decline in service prices will support rate cuts in September and beyond.

She added: The concentration of inflation in core goods categories will make it easier for the Fed to justify rate cuts, even if overall inflation remains above target.

Markets are now shifting focus to the US Producer Price Index data due later today, seeking further signals on whether price pressures are truly starting to build.

The US Dollar Index which tracks the greenback against a basket of major currencies fell 0.16% to 98.46.

Another factor influencing investor sentiment is speculation that Jerome Powells successor as Fed Chair could favor rate cuts.

President Donald Trump has repeatedly attacked Powell for not cutting rates, calling for his resignation on several occasions. On Tuesday, Trump said cost overruns in the Feds $2.5 billion headquarters renovation project might be grounds for dismissal.

Michael Pfister, foreign exchange analyst at Commerzbank, commented: Trumps attacks on the Feds independence are unlikely to stop. A 25-basis-point rate cut wont satisfy him, as hes calling for a 300-point cut. That makes it unlikely that the dollars current recovery will last long.

In trade news, Indonesia announced Wednesday that it had reached a deal with the US after an exceptional negotiation battle, resulting in proposed tariffs on Indonesian goods being reduced from 32% to 19%.

Separately, Trump said Tuesday that a trade agreement with Vietnam is imminent, adding that more trade deals are in the pipeline, while also revealing new details on planned tariffs targeting pharmaceutical products.