By Alun John and Kevin Buckland
LONDON/TOKYO (Reuters) -The dollar gained against European peers on Wednesday ahead of a highly anticipated reading of U.S. inflation, also boosted by a Reuters report China was considering allowing a weaker currency next year which sent the yuan and other Asian currencies lower.
The euro was last down 0.18% at $1.0508, a day before a European Central Bank meeting, and the pound shed 0.16% to $1.2752 as traders awaited U.S. CPI data, which will be released at 1330 GMT.
Economists expect both headline and core consumer prices to have risen 0.3% in November from previous increases of 0.2% and 0.3%, respectively.
Traders currently assign 85% odds to a quarter-point rate cut by the Fed on Dec. 18, but a higher than expected print could possibly disrupt these expectations, and concern about this was supporting the dollar on Wednesday.
"The market is thinking 'what if that CPI report comes in strong?' and then some of the Fed easing expectations could be priced out which would be dollar supportive," said Jane Foley head of FX strategy at Rabobank in London.
She said the dollar was also being affected by Reuters' report that China's top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher trade tariffs in a second Donald Trump presidency in the United States.
The bigger movers on the story were naturally in Asia. The dollar jumped on the yuan, and was last up 0.24% against the offshore unit at 7.2780 and 0.23% higher on the onshore currency at 7.2491.
The contemplated move reflects China's recognition that it needs bigger economic stimulus to combat Trump's threat of bigger tariffs, people with knowledge of the matter said, according to the report.
China is expected to hold its annual Central Economic Work Conference, this week, after Monday's Politburo meeting vowed to switch to an "appropriately loose" monetary policy to spur economic growth.
"If a currency depreciation served as a tactic to counter tariff shock, the likely escalating trade war could reinforce (U.S. dollar) exceptionalism and weigh on regional currencies," said Ken Cheung, FX strategist at Mizuho (NYSE:MFG).
China-exposed Antipodean currencies fell with the Aussie last down 0.3% to $0.6358 and the kiwi 0.3% lower at $0.578, after both touched on year lows after the report. Korea's under-fire won also dipped.
Japan's yen was in focus as well, strengthening after data showed Japanese wholesale inflation accelerated, supporting the case for a Bank of Japan interest-rate hike next week.
The dollar was last down 0.3% at 151.49.
"The data is leaning towards a hike," said Bart Wakabayashi, co-branch manager at State Street (NYSE:STT) in Tokyo. "Put it this way: if they raise, it's a very defendable position."
At the same time, "we've seen overall very strong economic numbers in the U.S.," Wakabayashi said.
"All the reasons that we bought the dollar in the first place, they still persist," he said. "If you ask me if I think we'll see 145 or 155 (yen per dollar), at this point I'd say 155."
In other central bank news, the Bank of Canada meets later Wednesday and the Swiss National Bank meets on Thursday just ahead of the ECB.
The BoC is seen as likely to cut by a half point which is helping to pin the loonie near a 4-1/2-year trough to the greenback. One U.S. dollar last bought C$1.4188.
The Swiss franc held steady on the euro at 0.9289 to the common currency but softened on the strengthening dollar, which was up 0.15% on the franc at 0.8842.