The greenback reached a five-month low against the New Zealand dollar and a three-week low against the euro in early Asia trade, resuming its decline after a sudden bout of risk aversion in New York hours on Wednesday led to a selloff in U.S. stocks and a gain in the dollar

The dollar stayed near a more than four-month low on Friday ahead of a reading on a key U.S. inflation gauge due later in the day, which will provide further clarity on how much room the Fed has to cut interest rates next year.

The greenback reached a five-month low against the New Zealand dollar and a three-week low against the euro in early Asia trade, resuming its decline after a sudden bout of risk aversion in New York hours on Wednesday led to a selloff in U.S. stocks and a gain in the dollar.

The kiwi was 0.03 per cent higher at $0.6296 after touching a session high of $0.6298, while the euro peaked at $1.10125.

Focus now turns to Friday’s U.S. core PCE data – the Fed’s preferred measure of underlying inflation – for hints on how far inflation in the world’s biggest economy is slowing.

Expectations are for the core PCE price index to have increased 3.3 per cent on an annual basis, as compared to October’s 3.5 per cent.

The distribution for U.S. inflation is now considered skewed and one-sided, with a high probability of lower levels, said Chris Weston, head of research at Pepperstone.

Hence, the Fed has increased scope to ease policy in case the need arise, and while Fed officials are saying their work is not done, and the last push to get to its 2 per cent inflation target is the hardest part, they can front load cuts far more efficiently when core PCE is at 3.5 per cent and dropping, Weston added.

Against a basket of currencies, the greenback was at 101.76, pinned near a more than four-month low of 101.72 hit in the earlier session.

The dollar index was on track for a weekly loss of nearly 0.8 per cent and looked set to extend last week’s 1.3 per cent decline, after the Fed left the door open to rate cuts next year at its last policy meeting for 2023.

The Australian dollar slipped 0.09 per cent to $0.6797, though remained not too far from its five-month high of $0.68035 first hit on Thursday.

Sterling was little changed at $1.26905 and was headed for a slight weekly gain, pressured by British inflation data out this week that came in well below expectations.