The dollar traded in a limited range on Tuesday ahead of critical U.S. inflation data and the Federal Reserve’s two-day monetary policy meeting.

China’s yuan plummeted to a six-month low after the central bank slashed a short-term lending rate for the first time in 10 months to boost market confidence and its post-pandemic recovery.

Last traded at 7.1618, the onshore yuan bottomed at 7.1680 per dollar, its lowest since November.

Its offshore counterpart fell 0.2% to 7.1709 per dollar, a six-month low.

“China’s slowdown is partly due to policymakers’ intention to push ahead with structural reforms,” ANZ analysts wrote.

“Monetary easing is merely a tentative measure to engineer a soft landing for the traditional economy.”

Market attention now turns to the U.S. Labor Department’s CPI report, due Tuesday. It is likely to indicate inflation eased slightly in May and could allow the Fed to stop its aggressive rate-hike cycle when it announces its interest rate decision on Wednesday.

According to CME FedWatch, markets are putting in an 84% chance that the Fed will hold rates this week.

Expectations kept risk sentiment high, keeping the U.S. dollar to multi-week lows against risk-sensitive Australian and New Zealand dollars.

After hitting a one-month high of $0.6774 the previous session, the Aussie climbed 0.23% to $0.6766.

The kiwi stabilized at $0.6126, around Monday’s top of $0.6153, its best since May 24.

“If inflation is above the consensus, then I think the market could put in a greater chance of a Fed rate hike this week,” said Commonwealth Bank of Australia head of international and sustainable economics Joseph Capurso.

“(But) I think the Fed’s probably not going to hike… and they’ll sound a bit dovish, and that’s going to push the U.S. dollar back down again.”

Sterling jumped 0.16% to $1.25315 after hitting a one-month high of $1.2600 on Monday after Bank of England policymakers suggested interest rates may have to rise further due to sticky inflation.

The euro hit $1.0792, its highest since May 24, as traders anticipated the European Central Bank’s interest rate decision on Thursday.

“A 25 bp rate hike from the ECB at this week’s policy meeting is considered a done deal,” said Rabobank’s FX strategist Jane Foley.

“It is widely assumed that the ECB is closing in on the end of its rate hiking cycle, meaning the market will be trying to evaluate not just how high rates will go, but how long they will remain at their peak.”

The dollar/yen fell 0.06% to 139.52.

The U.S. dollar index lost 0.17% to 103.40, approaching Monday’s trough of 103.24, its lowest since May 23.

Friday’s BOJ monetary policy decision is expected to maintain its ultra-dovish attitude and yield curve control (YCC) settings.

“We now expect the BOJ to change its YCC policy in July, but as in the past, it may effect this change without signalling ahead,” said Chong Hoon Park, head of Korea and Japan economic research at Standard Chartered Bank Korea.

“The central bank will likely continue to send dovish messages or one of no intention of policy change until it changes direction.”