The dollar stepped back from a seven-month high against an index of currencies on Wednesday after US consumer prices showed a moderation in underlying inflation, prompting markets to trim bets on a December Federal Reserve rate hike.

The dollar index against a basket of six major currencies stood at 97.846, off Monday’s seven-month high of 98.169.

The Australian dollar pared some of its earlier gains after a barrage of Chinese economic data. The overall reaction across major currencies was limited, however, as there were no huge surprises.

Chinese economic data

China’s third-quarter gross domestic product matched market forecasts, while September industrial production came in below expectations.

“There was probably some profit-taking in the wake of the (Australian dollar’s) rise seen since yesterday,” said Hirofumi Suzuki, an economist for Sumitomo Mitsui Banking Corporation in Singapore, adding that there may have been some reaction to the slightly disappointing data on industrial output as well.

Still, Suzuki said the Chinese data overall suggests that Chinese authorities still have solid control over the economy and that the risks of a sharp deterioration are limited. That bodes well for the Aussie dollar in the near term, he said.

The Australian dollar last traded at $0.7670. Earlier on Wednesday, the Aussie dollar rose to $0.7691 at one point, matching its high on Oct. 4.

The Aussie had gained support following comments from the Reserve Bank of Australia Governor, Philip Lowe, on Tuesday that he was comfortable with the current exchange rate.

The dollar struggled to gain traction in the wake of US inflation data on Wednesday.

The so-called core CPI, which strips out food and energy costs, gained 0.1 per cent last month after climbing 0.3 per cent in August, slowing the year-on-year increase in the core CPI to 2.2 per cent following a 2.3 per cent rise in August.

Fed fund futures imply around a 65 per cent probability of the Federal Reserve raising interest rates by December, down from 70 per cent ahead of the US CPI data.

“There was a bit of correction on the dollar’s broad strength. The dollar’s decline was notably against sterling most, as the British currency was heavily shorted,” said Yukio Ishizuki, currency strategist at Daiwa Securities.

The euro held steady at $1.0984, just above Monday's 2-1/2-month low of $1.0964.

A break of that level could open the way for a test of $1.0912, a low marked on June 24 in the wake of the Brexit vote.

ECB policy meet

The common currency is weighed by wariness ahead of the European Central Bank’s policy meeting on Thursday.

The central bank is widely expected to keep its policy unchanged with any decisions on the future of its asset purchase scheme expected to be deferred until December.

But some traders are nervous ECB chief Mario Draghi could take a dovish stance to counter recent talk that the ECB is considering tapering its asset purchases.

The British pound slipped 0.1 per cent to $1.2287. Still, sterling held on to the bulk of the gains made on Tuesday, when it climbed 0.95 percent for its biggest daily gain in six weeks.

Brexit deal

Short-covering in sterling was triggered after a UK government lawyer said parliament would “very likely” have to ratify any deal to take Britain out of the European Union, and following stronger-than-expected inflation numbers.

Investors generally assume British lawmakers as a whole are less in favour of a hard line on Brexit than Prime Minister Theresa May and the ministers she has put in charge of negotiations.

Against the yen, the dollar eased 0.1 per cent to 103.80 yen.

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