By Ian Chua
SYDNEY (Reuters) - The dollar wallowed at a fresh one-month low against a basket of major currencies early on Friday, as tame U.S. inflation data added to uncertainty over when the Federal Reserve will begin raising interest rates.
A measure of core inflation rose a mere 0.1 percent in May, the smallest gain in five months, suggesting the Fed can stick to a very gradual policy tightening cycle, when it eventually does start hiking rates later in the year.
The dollar dipped as far as 122.475 yen > overnight, continuing to retreat from this week's high of 124.465. It last stood at 123.080, down 0.3 percent so far this week.
A Bank of Japan policy meeting will be the key focal point for Asia, although no fireworks are expected with policymakers increasingly wary of expanding their already radical stimulus programme.
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Some analysts say the BOJ may have become more hesitant to ease for fear of weakening the yen further and drawing criticism from lawmakers already fretting about the downside of a weaker yen.
Other U.S. data on Thursday suggested the economy was picking up steam.
The number of Americans filing for new unemployment benefits fell last week to a near 15-year low and factory activity in the mid-Atlantic region accelerated to a six-month high in June.
Ray Attrill, global co-head of FX strategy at National Australia Bank said U.S. markets appeared to have settled on the view that this week's FOMC outcome reduced the chances of more than one rate hike before year end.
"We might hope to get a bit of the flavour of this week's meeting when we hear from San Francisco Fed President John Williams and Cleveland Fed President Loretta Mester both towards the end of the London trading day Friday," he added.
The euro firmed slightly to $1.1373 >, having climbed as high as $1.1440 overnight. It was up nearly 1 percent this week.
The resilience of the common currency was more a reflection of dollar weakness rather than demand for the common currency, given Greece's future in the euro zone was still hanging in the balance.
Athens and its creditors have been deadlocked over a debt deal for weeks and if unresolved could see the cash strapped country default on payments due at the end of the month.
Investors are still clinging to the hope that an eleventh hour deal will be struck, as has been the case for each flash point that Greece faced in the past few years of crisis.
In what is billed as yet another 'last ditch' attempt to break the impasse, euro zone leaders will hold an emergency summit on Monday.
Sterling made the most against the depressed greenback, clambering to a seven-month high of $1.5930 >, partly as speculation mounts the Bank of England may pip the Fed in lifting rates.
All that left the dollar index <.DXY> at 94.016, near a one-month trough of 93.563 plumbed overnight.
(Editing by Kim Coghill)
