- The U.S. dollar edged lower in early European trade Wednesday, but gains are limited ahead of the release of the much anticipated April U.S. inflation report.

At 03:20 ET (07:20 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 101.345.

The currency markets are trading in something of a holding pattern as traders await the release of the latest U.S. data, due later in the session, for clues over future interest rate moves.

The U.S. central bank delivered its tenth straight interest rate increase last week, but Chairman Jerome Powell also indicated that it may pause its tightening campaign in June if incoming economic data allowed.

Economists expect the widely watched , which excludes volatile food and fuel prices, to increase by 5.5% on a year-over-year basis, a slight drop from the 5.6% increase a month earlier, and a of 0.4%.

“This will be a rather crucial week for markets to fine-tune their Fed rate expectations after Chair Jerome Powell seemed to trade the explicit openness to a pause in tightening with some pushback against rate cut speculation last week,” said analysts at ING, in a note.

Traders will also follow the discussions surrounding the U.S. debt ceiling as a meeting of top lawmakers on Tuesday failed to break the deadlock over potentially raising the $31.4 trillion U.S. debt limit with just weeks to go before the United States may be forced into an unprecedented default.

Elsewhere, rose 0.2% to 1.0976, remaining near its highest level in over a year after German consumer prices were confirmed at on the month in April, up on the year.

The will keep raising borrowing costs until it sees core inflation decline sustainably, ECB board member said on Tuesday, adding market expectations for rate cuts were misplaced.

rose 0.1% to 1.2627, retaining strength ahead of Thursday's central bank policy meeting, with the expected to raise interest rates by another 25 basis points to 4.5% as it tackles the highest inflation of any big advanced economy.

“We don’t expect to see huge volatility on the pound around the release, and see GBP/USD consolidating at levels above 1.25 in the aftermath of the BoE meeting,” ING added.

rose 0.1% to 135.38, extending losses into a fourth straight session with the retaining its dovish monetary policy for the immediate future.

rose 0.1% to 0.6769, continuing its positive run after a surprise interest rate hike by the earlier this month, while rose 0.1% to 6.9280, climbing close to the widely watched 7-level as questions over the sustainability of a post-COVID economic rebound increase.