By Joice Alves
LONDON/TOKYO (Reuters) -The dollar edged down on Wednesday ahead of a key inflation report later in the day, while the yen remained near multi-decade lows, keeping traders on alert for signs Japanese authorities could intervene to prop up the currency.
Traders are waiting for the U.S. consumer price inflation for March due at 1230 GMT, which could provide hints on the Federal Reserve's policy outlook.
Ahead of the data, money markets were pricing in a 50% chance of a Fed rate cut in June, according to CME Group's (NASDAQ:CME) FedWatch tool. The possibility of a hold has bumped up to 46%.
The U.S. CPI data follows a strong jobs report last Friday that blew past forecasts, raising questions on how soon and how much the Fed will cut rates this year.
A solid inflation number could lead markets to price out a June cut, which could propel the dollar higher, analysts said.
"A lot of forex traders are expecting to see higher readings again," said Ulrich Leuchtmann, head of FX and Commodity Research at Commerzbank (ETR:CBKG).
"Then it would seem clear as daylight that there will be no quick Fed rate cuts".
But if last month's reading falls below 0.3%, that would lead to a reassessment of the U.S. inflation trend and could lead to major weakness in the dollar, he added.
The U.S. dollar index, which measures the greenback against six rivals, edged 0.04% lower to 104.04.
In Japan, no fresh warnings were issued as the yen remained close to its 34-year low versus the dollar ahead of the U.S. data.
Bank of Japan Governor Kazuo Ueda, however, brushed aside market speculation that the yen's sharp falls could force the central bank to raise interest rates.
The Japanese currency was little changed at 151.84 per dollar.
Elsewhere, the kiwi was last up 0.3% at $0.6076, near a three-week high of $0.60775, after the Reserve Bank of New Zealand kept rates on hold, as expected, but warned of persistent inflation.
The euro was also steady on the day at $1.0863, after jumping to a three week high against the dollar on Tuesday, with Thursday's European Central Bank meeting fast approaching.
In the meantime, Fitch cut its outlook on China's sovereign credit rating to negative, citing risks to public finances as the economy faces increasing uncertainty in its shift to new growth models.
The offshore yuan steadied at 7.2418, with traders also eyeing China inflation and trade data due later this week.