The figures are due at 1230 GMT. Economists expect year-on-year headline inflation running at a scorching 8.7%, a small retreat from June's whopping 9.1% figure. Core inflation is expected at 0.5% month-on-month.

Currency market moves have been slight in the lead up and for previous releases, reactions have been more muted than in the volatile bond market. The greenback was broadly steady overnight, though has paused a bit of a retreat that began in the middle of July.

It bought 135.14 Japanese yen and sat at $1.0208 per euro. The Australian and New Zealand dollars eased slightly, with the Aussie last at $0.6958 - just above its 50-day moving average. The kiwi bought $0.6284.

Traders expect reaction to turn on the core inflation figure.

"The market will initially get more excited by a downside core CPI surprise than an upside surprise," said Deutsche Bank strategist Alan Ruskin, feeding in to hopes that falling commodity prices mean inflation can quickly recede.

"It will also play to the market's recent proclivity to buy risk dips, and will be a broad-based negative for the U.S. dollar," he said.

"An upside core CPI surprise will fit with the pattern of the last three releases...the purist long dollar trade in this instance is versus the yen," he said, adding dollar/yen could likely to rise into a 135-139 per dollar range.

A quick reading on policymakers' reaction may come from Fed officials Charles Evans and Neel Kashkari who are due to make speeches at 1500 GMT and 1800 GMT, though they will have another set of price data in August before September's policy meeting.

"A one-off sharp drop in CPI at this point should not mean that much to the Fed," said NatWest Markets' rates strategist Jan Nevruzi.

"They need to see at minimum a consistent multi-month trend to turn around, while acceleration in inflation means that a lot more has to be done on the tightening front."

Chinese inflation data is also due on Wednesday, though is expected to show it firmly under control. The yuan has faced some pressure from rising Sino-U.S. tensions and a widening property and banking crisis in China. [CNY/]

In offshore trade, the yuan was steady at 6.7550 per dollar.

Bitcoin, rattled by a drumbeat of cryptocurrency fund wipeouts and thefts over recent months, fell sharply on Tuesday and was at $23,070 on Wednesday.

In emerging markets, the Bank of Thailand is expected to lift interest rates from record lows and the baht hung on to recent gains. [EMRG/FRX]

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Currency bid prices at 0008 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0205 $1.0213 -0.08% -10.23% +1.0215 +1.0205

Dollar/Yen

135.1150 135.1250 +0.00% +0.00% +135.2300 +0.0000

Euro/Yen

137.92 138.00 -0.06% +5.83% +138.0700 +137.9200

Dollar/Swiss

0.9540 0.9537 +0.05% +4.60% +0.9543 +0.9538

Sterling/Dollar

1.2072 1.2075 -0.01% -10.72% +1.2091 +1.2073

Dollar/Canadian

1.2888 1.2883 +0.02% +1.92% +1.2890 +1.2884

Aussie/Dollar

0.6950 0.6962 -0.19% -4.40% +0.6966 +0.6949

NZ

Dollar/Dollar 0.6280 0.6288 -0.04% -8.17% +0.6288 +0.6284

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook; Editing by Lincoln Feast.)

By Tom Westbrook