Dollar slips vs euro after U.S. CPI data hints at dovish Fed

The U.S. dollar edged lower against the euro on Wednesday after data showed U.S. consumer prices fell last month, fuelling scepticism that the Federal Reserve will adopt a more hawkish tone in a policy statement later in the session.

The Labor Department said its Consumer Price Index fell 0.2 percent in August as a broad decline in energy prices offset increases in food and shelter costs, marking the first dip since April of 2013 and below expectations for a flat reading, according to a Reuters poll of economists.

"At the margin, (the CPI data) gives a little bit of ammunition to the people on the FOMC that were concerned about disinflation risks," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York, referring to the Fed's policy-setting Federal Open Market Committee, which ends a regular two-day meeting on Wednesday.

Analysts said the data added to doubts that the Fed would take a more hawkish stance on raising interest rates from rock-bottom levels on Wednesday following its meeting. The Fed will issue a policy statement at 2 p.m.

Doubts on a more hawkish tone rose on Tuesday after the Wall Street Journal said the U.S. central bank may maintain a pledge to keep near-zero rates in place for a "considerable time".

The Fed is monitoring U.S. inflation and unemployment for clues on when to raise rates. A rate hike would strengthen the dollar by driving investment flows into the United States, strategists have said.

The view that the Fed could maintain an accommodative monetary stance underpinned risk appetite, which hurt the safe-haven yen, said Jens Nordvig, head of G10 FX strategy at Nomura Securities International.

U.S. stocks climbed ahead of the Fed statement, also showing solid risk appetite. The benchmark S&P 500 .SPX was last up 0.12 percent. [.N]

Sterling rose against the dollar after new opinion polls on Scotland's independence referendum on Thursday showed a narrow lead for those supporting staying in the United Kingdom.

"The worst fears about Scotland are abating," said Nordvig of Nomura.

The euro EUR= was last up 0.03 percent against the dollar at $1.2963, not far from a nearly two-week high of about $1.3000 set Tuesday. The dollar was up 0.17 percent JPY= at 107.29 yen, not far from a six-year peak of 107.39 hit last Friday.

The U.S. dollar index .DXY, which measures the greenback against a basket of six major currencies, was last down 0.04 percent at 84.042. The dollar was last up 0.17 percent against the Swiss franc CHF= at 0.9342 franc, while sterling GBP= was last up 0.45 percent against the dollar at $1.6349.

(Reporting by Sam Forgione; Additional reporting by Anirban Nag in London; Editing byJames Dalgleish)