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Dollar holds steady, pound hits 27-month low

The dollar was little changed against most major currencies on Wednesday, pausing after prior day's gains tied to stronger-than-forecast retail sales data, while the pound fell to 27-month lows versus the greenback on jitters about a no-deal Brexit.

The euro hit a one-week low against the dollar and towards the lower end of this year's trading range, weighed down by expectations of easing from the European Central Bank and investors' preference for the higher-yielding U.S. currency.

"It's been a quiet midweek night of trade in FX with major holding steady around key levels after selling off against the dollar yesterday," Boris Schlossberg, managing director of FX strategy at BK Asset Management wrote in a research note.

The euro fell to $1.120 earlier Wednesday before clawing back up to $1.1227.

The dollar was little changed at 108.08 yen. The pound fell to a fresh 27-month low of $1.2382 before rebounding to $1.2429. It also hit a fresh six-month low against the euro at 90.51 pence.

An index that tracks the dollar against the euro, yen, pound and three other currencies was down 0.22% at 97.19 after touching a one-week high.

The greenback has strengthened since late June in response to better-than-expected data on U.S. jobs, inflation and retail sales.

Its rise has been limited by firming signals from Federal Reserve officials of a possible rate decrease perhaps in two weeks to counter risk from global trade tensions and sluggish price growth at home. U.S. interest rates futures implied traders fully expect the Fed to cut rates at its upcoming policy meeting on July 30-31 with a 35% chance for a half-point decrease, CME Group's FedWatch tool showed.

Fed policy-makers will release an assessment of the economy with its latest Beige Book at 2 p.m. (1800 GMT). Moreover, the International Monetary Fund on Wednesday said the greenback was overvalued by 6% to 12%, based on near-term economic fundamentals, while the euro, Japan's yen and China's yuan were seen as broadly in line with fundamentals.

Wednesday's data on euro zone consumer price inflation, which was revised up to 1.3% year-on-year in June, failed to boost the euro.

ECB board member Benoit Coeure said the ECB was ready to act if necessary to help inflation in the euro zone move towards its aim of close to but below 2%. Nearly two ECB interest rate cuts of 10 basis points are priced in by money markets for 2019.