The dollar drifted lower against its rivals Thursday, as a slowdown in inflation triggered warnings from analysts that the greenback was nearing a peak.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.27% to 94.56
The Labor Department said on Thursday its Consumer Price Index rose 0.2% last month, below economists' expectations for a 0.3% increase. The slower pace of rising consumer prices in August, pushed the year-on-year increase in the CPI down to 2.7% from 2.9% in July.
The report is unlikely to sway the Fed's policy stance. But it does provide further evidence that "the dollar rally is near its peak as valuations are getting stretched and positioning is lopsided," TD Securities said in a note to clients.
The odds of a September rate hike are fully priced in, according to 's Fed Rate Monitor tool.
The dollar also declined against both the pound and euro following updates from the Bank of England and European Central Bank.
GBP/USD rose 0.50% to $1.3107 $1.3108 as the Bank of England held rates steady but expressed optimism over the U.K. economy, citing both stronger-than-expected second-quarter economic and wage growth.
EUR/USD rose 0.45% to $1.1678 following the European Central Bank's widely expected unchanged rate decision and signs the central bank is committed to ending its bond-buying program.
The dollar also found itself on the wrong side of a rise in emerging market currencies after the Turkish lira rallied in the wake of the Central Bank of Turkey's decision to hike rates to 24%.
The more-hawkish-than-expected move by Turkey's central bank shows it is prepared to "swallow the bitter medicine," that most economists believe is necessary to cure the malaise of a country suffering the aftermath of prior credit excesses, said Holger Schmieding, economist at Berenberg.
Elsewhere, USD/CAD fell 0.04% to C$1.2991, backing away from session highs, pressured by investor optimism for a successful outcome from Canada and United States talks on a revamp of the North American Free Trade Agreement (NAFTA).
USD/JPY rose 0.51% to Y111.83.