The dollar remained under pressure versus the resurgent sterling Wednesday as traders mulled a slew of economic data, including another tame inflation report and the Fed's Beige Book.

The buck dropped to its lowest level since January against the sterling, with traders betting that the economic outlook for the UK may be brighter than once feared.

Overall economic activity has contracted further or remained weak, according to the Federal Reserve's Beige Book report released on Wednesday, although five of the twelve Fed districts noted a moderation in the pace of decline.

The report, a compilation of anecdotal evidence on economic conditions from each of the twelve Federal Reserve districts, also noted that several districts saw signs that activity in some sectors was stabilizing at a low level.

Consumer prices unexpectedly showed a modest decrease in the month of March, according to a report released by Labor Department on Wednesday, with the drop in prices largely due to a notable decline in energy prices.

The Labor Department said its consumer price index edged down 0.1 percent in March following a 0.4 percent increase in February. The modest decrease came as a somewhat of a surprise to economists, who had expected prices to edge up 0.1 percent.

The dollar dropped to 1.5036 versus the sterling, hitting its lowest level since January before stabilizing in mid-day dealing. With the retreat, the dollar continued to move well away from a 23-year high near 1.3501, set in February.

Meanwhile, the dollar was little changed against its other major counterparts, firming up slightly versus the yen after seeing steep losses in the previous session. The dollar advanced to 99.64, bouncing back from a 2-week low near 98. Last week, the dollar rose to a 4-month high of 101.43.

Meanwhile, the dollar continued its run of choppy dealing versus the euro, holding near 1.3200 over the course of the day.

Axel Weber, Governing Council member of the European Central Bank said there is still a little room to cut the main refinancing rate, but it should not go below 1%. In a speech in Hamburg, Weber said if the interest rate falls below 1%, banks will have no incentive to lend to each other, paralyzing interbank lending.

In other economic news from the US, industrial production continued to decrease in the month of March, according to a report released by the Federal Reserve on Wednesday, with a notable decline in mining output contributing to the bigger than expected drop.

The report showed that industrial production fell by 1.5 percent in March, matching the decrease that was reported for the previous month. Economists had been expecting a somewhat more modest decrease of about 0.9 percent.

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