"The dollar is weakening because of the expectations that a Fed rate hike is being pushed further and further out," said Michael Arone, chief investment strategist at State Street Global Advisors' U.S. Intermediary Business in Boston.
The U.S. economy may not be as weak as some traders fear after the Fed's Beige Book showed it grew at a modest pace in recent weeks, although a strong dollar restrained manufacturing and tourism.
The greenback's strength since June 2014 has been a drag on the U.S. economy and has made the Fed reluctant to hike near zero rates. The dollar index has retreated over 6 percent from its 12-year peak set in March.
The dollar index was last down 0.95 percent at 93.863. It hit a seven-week low of 93.845.
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Against the yen, the dollar hit a 1-1/2 week low, last 0.8 percent lower to 118.75 yen
The euro reached a seven-week high against the greenback. It was last up nearly 1 percent at $1.1487.
Earlier China's price data showed annual consumer inflation growth slowed to 1.6 percent in September, below a forecast 1.8 percent rise and 2.0 percent increase in August.
"A clouded outlook for China can be used as an argument by the Fed to postpone a rate hike," said Niels Christensen, currency strategist at Nordea in Copenhagen.
U.S. interest rates futures implied traders see about a 1-in-4 chance the Fed would raise rates by year-end, according to CME Group's FedWatch program.
The Australian dollar, a proxy for investments in China, rose 0.8 percent to $0.7305, erasing earlier losses during Asian trading on the muted Chinese inflation data.
Sterling jumped to its strongest levels against the dollar in three weeks on upbeat employment data. It was up 1.6 percent at $1.5492.