The Dollar edged lower on Wednesday as investors adjusted their interest rate outlooks for the United States and the euro zone after conflicting economic data and monetary authorities toned down threats of tighter policy. Traders scrambled to revise downward their expectations of an August Federal Reserve interest rate rise after data this week showed US housing starts plunged to a 17-year low in May. In addition, Wholesale prices shot up, driven by energy costs, but analysts reckon the Fed will not rush to tighten policy in the absence of signs of stability in the housing sector, which threatens to drag the broader economy into a recession. US short-term interest rate futures are pricing in a roughly 48% chance of a 25bp rate increase in August, down from 90% Monday.

EurUsd rose 0.18% to 1.5545 after earlier slipping to 1.5463. It remained confined to a 1.5300-1.5550 range in the absence of fresh economic data. UsdJpy was 0.39% higher at 108.33. UsdChf dropped 0.55% to 1.0355 after posting 1.0469 intraday high. GbpUsd rose 0.1% to 1.9594. Remarks by San Francisco Federal Reserve Bank President Janet Yellen on Wednesday suggesting the volatility in financial markets was showing signs of easing gave the market little impetus.

The US central bank is widely expected to keep its benchmark fed funds rate target at 2% next week, having cut it by 325bp since mid-September to fend off a housing-led economic downturn. But, a tightening in monetary policy would help the Dollar regain some of its appeal to investors seeking higher returns. While expectations of a series of rates hikes from the ECB have also been scaled back in recent days, a move to 4.25% in July is still widely expected.