The US dollar was little changed on Wednesday after posting its biggest daily decline in nearly two weeks following weaker-than-expected US inflation data, which reduced market expectations for an imminent Federal Reserve rate hike, although concerns remain that higher oil prices could reignite inflationary pressures.

The dollar was steady against the Japanese yen at 162.24, while the euro and the British pound both rose about 0.1% to $1.1428 and $1.3406, respectively.

The US Dollar Index, which measures the greenback against a basket of six major currencies, held steady at 100.9 after falling 0.4% in the previous session, its biggest one-day decline in nearly two weeks, retreating from its highest level since July 2.

Data released on Tuesday showed US inflation slowed to 3.5% year-over-year in June, below expectations of 3.8%, while the headline Consumer Price Index fell 0.4% month-over-month, marking the first monthly decline since April 2020, driven by lower energy prices.

The softer inflation data pushed US Treasury yields lower, with the two-year Treasury yield falling about 9 basis points from a 16-month high as markets scaled back expectations for a near-term interest rate increase.

Chris Turner, Global Head of Markets at ING, said markets had been increasingly convinced that the Federal Reserve would raise interest rates in September, but the latest inflation figures have cast some doubt on that scenario.

He added that the Fed will likely need several more weak inflation readings before ruling out another rate hike this year, noting that expectations for tighter monetary policy are likely to remain in place in the near term, helping to support the dollar, while energy prices remain a key factor in determining its direction.

In testimony before the House Financial Services Committee, Federal Reserve Chair Kevin Warsh reiterated that the central bank "will not tolerate" persistently elevated inflation and pledged to carry out its mandate even if it faces pressure from US President Donald Trump.

According to LSEG data, markets are now pricing in roughly a 65% probability of a rate hike at the September meeting, while the chances of a move in July have fallen to almost zero.

In the Middle East, the escalating confrontation between the United States and Iran continued to fuel inflation concerns after developments pushed oil prices to their highest level in a month. President Donald Trump reinstated a naval blockade on all Iranian ports, while the US military announced a new round of strikes aimed at reducing Iran's capabilities to target commercial shipping in the Strait of Hormuz.

In other currency markets, the Norwegian krone weakened against both the dollar and the euro after Norway's core inflation slowed more than expected in June, easing pressure on the central bank to raise interest rates next month.

Meanwhile, the New Zealand dollar held near a one-month high at US$0.5815, while the Australian dollar edged slightly higher to US$0.6985.

In China, economic growth slowed to 4.3% in the second quarter, marking the weakest pace in more than three years. The yuan briefly climbed to a one-month high on growing expectations that Chinese authorities will introduce additional economic stimulus measures.