By Karen Brettell

NEW YORK (Reuters) - The dollar fell against the euro and yen on Wednesday with no major catalysts to drive market direction as investors awaited U.S. inflation data for May due on Tuesday, and the Federal Reserve’s interest rate decision the following day.

The U.S. central bank is expected to hold rates steady as it evaluates the impact of recent rate increases, though Fed fund futures traders are pricing for an additional rate hike in July.

Consumer inflation data on Tuesday is expected to show that prices rose by 0.30% in May.

"We expect a fair degree of consolidation ahead of the Fed decision next week," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto. "That CPI number’s going to be critical for the Fed decision as well, to me it makes sense that we don’t see large bets placed either way at this point."

The euro was last up 0.30% against the dollar at $1.0726 and the U.S. unit dipped 0.22% to 139.33 yen. The was down 0.29% at 103.77.

Traders have also priced out most expectations that the Fed will cut rates this year as inflation remains above target.

"There is persistence and resilience in inflation in the U.S., but also in much of the G10, as well, meaning that central banks are likely to be cautious," said Rabobank chief strategist Jane Foley.

Data on Wednesday showed that the U.S. trade deficit widened sharply in April as imports of goods rebounded while exports declined, a trend that if sustained, could result in trade being a drag on economic growth in the second quarter.

The dollar has lost some momentum in the past week as investors unwind long bets that were taken as a hedge before the U.S. government raised the debt ceiling.

Investors are also watching whether the U.S. Treasury will see any demand problems as it dramatically ramps up issuance of Treasury bills to rebuild its cash balance following the increase in the debt limit.

That "could be an important market driver depending on who takes down that extra T bill issuance - whether its households and banks, or whether its money market funds", said Rai.

The Canadian dollar strengthened after the Bank of Canada hiked its overnight benchmark rate to 4.75%, the highest level in 22 years.

The U.S. dollar was last down 0.39% against the at C$1.3350.

The Australian dollar also continued to gain, a day after the Reserve Bank of Australia raised interest rates by a quarter-point to an 11-year high of 4.1%.

Australia's central bank chief on Wednesday stepped up a warning of more rate hikes ahead to temper rising price pressures.

The Australian currency was last up 0.42% at $0.6700.

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Currency bid prices at 10:10AM (1410 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.7700 104.0800 -0.29% 0.271% +104.2900 +103.6400

Euro/Dollar $1.0726 $1.0693 +0.30% +0.10% +$1.0740 +$1.0669

Dollar/Yen 139.3300 139.6450 -0.22% +6.28% +139.6550 +139.0250

Euro/Yen 149.44 149.29 +0.10% +6.51% +149.6000 +148.6400

Dollar/Swiss 0.9052 0.9077 -0.28% -2.10% +0.9087 +0.9044

Sterling/Dollar $1.2482 $1.2423 +0.49% +3.22% +$1.2500 +$1.2395

Dollar/Canadian 1.3350 1.3402 -0.39% -1.47% +1.3426 +1.3321

Aussie/Dollar $0.6700 $0.6672 +0.42% -1.71% +$0.6717 +$0.6663

Euro/Swiss 0.9708 0.9703 +0.05% -1.89% +0.9717 +0.9691

Euro/Sterling 0.8591 0.8604 -0.15% -2.86% +0.8612 +0.8589

NZ $0.6081 $0.6079 +0.05% -4.21% +$0.6097 +$0.6060

Dollar/Dollar

Dollar/Norway 11.0000 11.0960 -0.97% +11.96% +11.1330 +10.9880

Euro/Norway 11.7982 11.8554 -0.48% +12.43% +11.8950 +11.7859

Dollar/Sweden 10.8337 10.9181 -0.35% +4.09% +10.9448 +10.8178

Euro/Sweden 11.6173 11.6586 -0.35% +4.19% +11.6985 +11.6138