- The U.S. dollar edged higher in early European trade Wednesday, attempting a rebound after the previous session’s sharp losses as cooling U.S. inflation raised expectations that the Federal Reserve has reached the end of its monetary tightening cycle.

At 03:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.057, not far from Tuesday's two-month low of 103.98.

Weak U.S. CPI hit dollar hard

The dollar was hit hard on Tuesday after data showed that U.S. were unchanged in October, while the climbed 3.2% - below expectations - after rising 3.7% in September.

Sticky inflation has been a key point of contention for the Fed in maintaining its hawkish stance, especially after inflation rose more than expected in August and September. 

In fact, Fed officials were keen to maintain a hawkish stance ahead of this release, resulting in the downside surprise having a significant impact on the dollar as traders priced out any chance of another hike this year, turning their attention to when the Fed might start cutting rates. 

“We still think that the decisive blow to 'de-throne' the dollar will have to be given by a turn lower in activity data, which can make markets feel comfortable with pricing in more rate cuts,” said analysts at ING, in a note. “So, we will be looking with some interest at retail sales figures.”

Data on U.S. for October are due out later in the session, and analysts expect a drop of 0.3% from the month before, when retail sales rose 0.7%.

Sterling weakens as U.K inflation drops

In Europe, fell 0.2% to 1.2475, dropping from levels last seen in September, after British inflation cooled by more than expected in October, offering some relief to the Bank of England.

U.K. plunged to 4.6% on an annual basis in October, a sharp drop from 6.7% in September - the smallest increase in two years.

The recently paused its rate-hiking cycle which had seen its key interest rate climb to 5.25%, the highest level since the 2008 financial crisis. However, officials have been keen to stress that it is nowhere near cutting interest rates, even as the economy approaches recessionary territory.

fell 0.1% to 1.0867, after climbing to its highest level since August on Tuesday, ahead of the latest eurozone release, which is expected to show a sharp drop in September.

released on Tuesday showed that the eurozone economy contracted marginally quarter-on-quarter in the third quarter, underlining expectations of a technical recession if the fourth quarter turns out equally weak.

That said, ECB President last week said that rates will stay restrictive at least for several quarters as inflation remains elevated.

Yen’s recovery stymied by weak growth data

In Asia, rose 0.2% to 150.66, with the Japanese yen’s recovery from its one-year low hampered by weaker-than-expected data.

Data on Wednesday showed that Japan’s GDP shrank much more than expected in the third quarter, as sticky inflation and a weak yen dented private spending. 

fell 0.2% to 7.2398, with the yuan boosted by government data showing that Chinese and grew more than expected in October, indicating that recent stimulus measures from Beijing were bolstering some facets of the economy.