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Investing.com – The U.S. dollar edged higher in early European trade Thursday, but remained near a three-month low ahead of a key reading of U.S. inflation later in the session.

At 04:50 ET (09:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 103.120, just above the 102.46 level it hit on Wednesday, its lowest since Aug. 10.

Core PCE seen lowest since 2021

The dollar has received something of a boost after data showed the grew faster in the third quarter than initially reported. 

However, it’s still down 3.2% in November, its worst month in a year, on growing expectations the Fed will cut interest rates in the first half of 2024.

These expectations were boosted earlier this week after Fed Governor , widely seen as a hawkish voice at the central bank, flagged the possibility of a rate cut in the months ahead, if the recent decline in inflation continues.

With this in mind, traders await the release of the Fed’s preferred inflation gauge, the personal consumption expenditures price index, later Thursday.

The , which strips out food and fuel costs and is considered a better gauge of underlying inflation, is expected to have risen 3.5% on a year-over-year basis, a drop from 3.7% the prior month, and the lowest since mid-2021. 

Euro weakens ahead of eurozone inflation

In Europe, fell 0.4% to 1.0924, with the euro retreating ahead of the release of the latest eurozone inflation data.

The November release is expected to fall to 2.7% on an annual basis, from 2.9% the prior month. However, data released on Wednesday showed that German inflation eased to 2.3% in November, significantly more than the 2.6% expected.

The euro was also hit by the news that the contracted by 0.1% in the third quarter of the year, weaker than the 0.1% growth expected.

fell 0.2% to 1.2671, retreating further from the three-month top of 1.2733 seen earlier in the week.

Yen continues sharp recovery

In Asia, traded marginally lower to 147.18, with the yen receiving little support from data that showed grew less than expected in October, while remained muted. 

Still, the yen marked a sharp recovery from near 33-year lows in November, and was set to rise 3% in the month, its best monthly gain since November 2022, when the government had intervened in currency markets. 

edged lower to 7.1295, after a stronger midpoint fix from the People’s Bank of China. But gains were limited after data showed a sustained decline in Chinese manufacturing activity.