By Peter Nurse

- The U.S. dollar edged higher in early European trading Wednesday, bouncing from a two-week low, while sterling slipped back after U.K. inflation jumped to a 40-year high. 

At 03:00 ET (07:00 GMT), the , which tracks the greenback against a basket of six other currencies, rose 0.2% to 112.270, after dropping to the lowest since Oct. 6 at 111.76 overnight. 

The minor gains in the U.S. currency Wednesday stopped the recent correction from its multi-decade peak of 114.78 reached at the end of September.

Risk sentiment has been on the rise of late, helped by the reversal of the U.K.’s ill-fated unfunded tax-cutting plans, solid corporate earnings boosting equity markets, and warmer weather helping European gas prices drop.

However, “the correction has nothing to do with any softening of Federal Reserve tightening expectations,” said analysts at ING, in a note. “Here the market firmly expects the Fed to hike 75bp on 2 November and prices a terminal rate as high as 4.90% next spring.”

This underlying support has been best illustrated of late against the Japanese yen, with up 0.1% at 149.46, climbing to its highest level since August 1990, and pushing toward the key psychological barrier at 150. 

Breaking through the 145 level about a month ago prompted the Japanese authorities to intervene in support of the beleaguered yen, and the market is currently on full intervention watch.

Local Japanese media reported Finance Minister Shunichi Suzuki as saying earlier Wednesday that he was checking currency rates "meticulously" and with more frequency.

Elsewhere, fell 0.4% to 1.1277 after accelerated more than expected in September, with the consumer price index climbing to 10.1% on an annual basis, matching a 40-year high reached in July.

While this number will increase the pressure on the to continue tightening monetary policy, it also shows that household incomes will stay squeezed, likely leading to an economic slowdown as the year progresses. 

dropped 0.3% to 0.9825, retreating from Tuesday's high of 0.9875, a level last seen on Oct. 6.

The September release is due later in the session, and, like its British counterpart, is expected to have climbed to double digits on an annual basis.

The meets on Thursday next week, and is widely expected to lift its key interest rates by 75 basis points. This would match its hike in September, after it started its tightening path with a 50 basis points hike in July.

fell 0.2% to 0.6297, while fell 0.1% to 0.5677, remaining elevated after Tuesday’s surprise inflation increase, which increased the likelihood New Zealand’s central bank will deliver more interest rate hikes this year.

rose 0.2% to 7.2244, with widely expected to keep benchmark lending rates unchanged for a second straight month on Thursday.