As U.S. bond yields fell across the board, the dollar index hit its biggest three-day drop since May; the U.S. PPI report released today hinted that inflation may cool. Data on Wednesday showed that the year-on-year increase in the CPI climbed to the highest level in nearly four decades, with the yen and Swiss franc leading gains against the dollar. The U.S. dollar index was down 0.13% at 94.87, after falling as much as 0.37% to 94.65, its lowest level since Nov. 10. The index is up 6.3% in 2021 but is down about 1% this week and is about eight Worst weekly performance in a month.

U.S. consumer inflation data for December was slightly higher than expected, with prices rising 7 percent year-on-year, as expected, the biggest gain since June 1982. Still, traders don't think the inflation figures will make the already hawkish Fed too eager to change its stance. With the possibility of at least three rate hikes already priced in, some investors trimmed bets on further dollar gains.

TD Securities' Issa attributed some of the dollar's selling pressure to technical factors, with the euro rising above $1.14 on Wednesday for the first time since mid-November. Once we break the $1.14 mark, momentum traders may turn to selling the dollar. The euro was last up 0.11% at $1.1455, having touched $1.1482 earlier in the session. Traders said gains had slowed near the Nov. 11 high of 1.1488.

The dollar was lower against the yen for a second day, falling as much as 0.6% to 114.11. Safe-haven buying for the yen has returned as U.S. 10-year yields, the Nasdaq and oil prices tumbled, with stop-loss selling against the dollar also emerging. USD/JPY found short-term support at 114.00. The dollar fell as much as 0.6 percent against the Swiss franc to its lowest since Nov. 2.

Sterling was up 0.04% at $1.3706 after hitting $1.3749, its highest level since late October. Sterling has been strengthening recently as traders believe the UK economy can withstand a surge in coronavirus cases and the Bank of England is set to raise interest rates again as early as next month.