The dollar declined in early European trading on Wednesday, giving back some of its gains from the previous day ahead of the release of key U.S. inflation data.

At 03:00 Eastern Time (08:00 GMT), the dollar index, which tracks its exchange rate against a basket of 6 other currencies, was trading 0.1% lower at 110.340, after rising nearly 0.8% the previous day.

The main focus today will be on the release of the latest U.S. inflation report for October as traders await clues as to the size of the interest rate hike that the Federal Reserve}}} plans for the U.S. to authorize in December – another increase of 0.75 percentage point or half a point.

The US Consumer Price Index (CPI) for October will be released at 08:30 ET (13:30 GMT) and is expected to show an annualized increase of 8%, the lowest since February, while on a monthly basis it is expected to rise 0.6%, up from 0.4% in the previous month.

On an underlying basis, which excludes energy and food prices, CPI is expected to rise 6.5% year-over-year, up from 6.6% in the previous release, and 0.5% month-over-month, up from 0.6% a month earlier.

“A result in line with the consensus forecast of a 0.5% month-on-month rise in core inflation is likely to maintain expectations that the Fed Funds rate will be 5% next year, and this will support the dollar,” ING analysts said in a note.

The dollar received support the day before as traders rushed to this safe haven following news that cryptocurrency exchange Binance had rejected a bailout offer for its smaller rival FTX, leading to an increase in sell-offs of digital currencies.

Additionally, while the outcome of the U.S. midterm elections remains unclear, it seemed likely that Republicans would take control of at least the House of Representatives, likely leading to political gridlock in Washington.

“A scenario with a Republican House of Representatives and a Democratic Senate could be slightly positive for the dollar as the Biden administration will have to focus on presidential decrees, including a more hawkish policy towards China,” ING analysts added.

EUR/USD slipped to 1.0006, managing to prevent a break below parity for now, GBP/USD added 0.2% to 1.1383 after a strong 1.6% drop the previous day, while risk-sensitive AUD/USD fell 0.4% to 0.6401.

USD/JPY fell 0.1% to 146.34; with the yen rebounding slightly, having recently fallen to its weakest level since 1992. Further gains for the Japanese currency are likely to be elusive as the country’s authorities intend to maintain their very loose monetary policy and the US Federal Reserve is expected to raise interest rates again in December.

USD/CNY rose 0.1% to 7.2514: The yuan came under pressure amid diminishing hopes that the country will ease its strict measures to combat the coronavirus in the near future as cases continue to rise in a number of cities.