The US dollar traded in a narrow range on Thursday after relatively soft US inflation data prompted traders to scale back expectations for a Federal Reserve interest rate hike in September.

The dollar index fell 0.1% to 99.89 as of 11:28 GMT.

The US currency remains up 0.4% against a basket of major currencies since the start of the week and is on track for its first weekly gain in three weeks.

Inflation data

Data released on Wednesday showed that US consumer prices rose 0.1% in July, in line with economists expectations, prompting markets to cut the probability of a September rate hike to 40%, from 54% a week earlier, according to the CME FedWatch Tool.

Attention now turns to the Producer Price Index (PPI), a measure of wholesale inflation. Economists surveyed by Reuters expect the annual rate to slow to 4.9% in July from 5.5% in June.

That will be followed by the Core Personal Consumption Expenditures (Core PCE) Price Index on August 26, a measure traditionally used by the Federal Reserve as a key gauge of underlying inflation.

Although Fed Chair Kevin Warsh has indicated a preference for other measures, analysts say markets will continue to use CPI, PPI and Core PCE data as key inflation signals for the time being.

Japanese yen

The dollar edged lower against the yen to around 159.4, leaving it about 2.7% below the nearly 40-year high of around 164 yen reached in late July, which triggered a historic joint intervention by the United States and Japan.

Shusuke Yamada, head of Japan FX and rates research at Bank of America, said investors can gauge how committed Japanese authorities are to defending the yen only through movements in the dollar-yen exchange rate and the monetary policy response that may follow.