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TOKYO: The dollar was little changed against other major currencies on Tuesday as investors looked to US inflation data later in the session for clues on the timing of policy tightening by the Federal Reserve.

The dollar index stood at 92.596, having retreated from a two-week high of 92.887 hit on Monday while the euro changed hands at $1.1815, having bounced back from Monday's low of $1.17705, its lowest since Aug. 27.

Ahead of the Federal Reserve's next policy review on Sept 21-22, investors are closely looking at US consumer price data due at 1230 GMT.

Economists expect core CPI, an index which strips out volatile energy and food prices, to have risen 0.3% in August from July. Its annual inflation is seen easing slightly to 4.2% from 4.3% in July.

Overall consumer price inflation is expected to dip slightly to 5.3% from 5.4% in July.

"With the core CPI still seen above 4%, inflation is at a very abnormal level. Powell has been saying inflation will be transient since March but the Fed will probably have to adjust its wording in the next policy statement," said Yukio Ishizuki, senior strategist at Daiwa Securities.

The Wall Street Journal reported on Friday that Fed officials will seek an agreement to begin paring bond purchases in November.

"If the Fed does start tapering in November, announcing it in September, that would be a bit earlier than many investors' assumption and could hurt risk assets. The Fed's September meeting could become a turning point for markets," said Toshinobu Chiba, chief fixed income portfolio manager at Nissay Asset Management.

US dollar rises to two-week high

Under such market conditions, the dollar is deemed to benefit from funds escaping risk assets. But Chiba said its reaction may be more nuanced.

"Against the euro, the dollar could weaken because of the euro zone's current account surplus and the US immense deficit. The euro zone's economy also seems stronger than expected," he said.

The yen stood at 110.05 yen to the dollar, staying in its familiar territory over the past few weeks around 110.

Limited moves in the currency pair saw traders reducing expectations for market swings.

Implied volatilities on dollar/yen options have fallen, with six-month volatility falling to as low as 5.405%, its lowest since February last year just before the pandemic.

Sterling was flat at $1.3842 while the Australian dollar dipped 0.2% to $0.7353 after the country's central bank chief, Philip Lowe, reiterated that interest rates were not expected to rise from record lows until 2024.

While the world's stock markets rebounded on Monday after a fall last week, supporting risk sentiment, some analysts also warn of growing headwinds to risk sentiment.

"Global risk appetite is edging toward a more tenuous and twitchy phase. A discordant G2 is increasingly the problem," said Alan Ruskin, macro strategist at Deutsche Bank in New York.

"The US-China trade dispute has not found any resolution. On the contrary, market forces are dominating quantity targets, and widening bilateral balances will again prove a source of tension," he added.

Many investors were also keeping an eye on developments in China, where cash-strapped property developer Evergrande struggled to fend off solvency concerns while a relentless wave of regulatory moves by Beijing hit big tech firms.

New local COVID-19 infections in China more than doubled after a relative calm in the last few weeks.

The yuan was little moved at 6.4446 per dollar.

In the crypto market, Bitcoin dropped to as low as $43,400, its lowest in almost a week and last stood at $45,191 while ether changed hands at $3,295.

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