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Asian shares nudged higher and the dollar was at a two-month low on Wednesday ahead of crucial U.S. inflation data that will help gauge whether the Federal Reserve is at the end of its aggressive rate hike policy.

The Japanese yen strengthened against most major currencies and last fetched 139.43 against the dollar, its highest in a month.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.61% higher, while Australia's S&P/ASX 200 index rose 0.54%. Japan's Nikkei slid 1%.

Economists polled by Reuters expect the consumer price index, scheduled to be released later on Wednesday, to have risen by 3.1% in June, after May's 4% increase. That would be the lowest reading since March 2021.

"This data point probably will not change the Fed’s well-communicated intention to resume hiking at the July FOMC meeting," Saxo Markets strategists said in a note.

"However, if the core CPI decelerates as anticipated, investors may continue to keep the odds for September and November rate hikes low."

The core rate is expected to have dropped for a third month to 5% from 5.3%, though that is more than double the Fed's 2% target.

Markets are pricing in a 92% chance of a 25 basis point hike later this month, CME FedWatch tool showed, but remain doubtful of further hikes after that.

Fed officials have indicated they expect to hike interest rates by at least another 50 basis points as they tackle persistent price pressures.

China shares eased 0.14%, while Hong Kong's Hang Seng Index rose 0.5% in early trading. On Monday, China extended some policies to shore up the real estate sector until 2024-end, stoking expectations of more stimulus.

Rodrigo Catril, senior FX strategist at National Australia Bank, said a meaningful fiscal spending announcement was needed for the market to become more positive on China.

Investor attention will also be on second-quarter earnings this week, with results due from some of Wall Street's biggest institutions, including JPMorgan, Citigroup and Wells Fargo.

Wall Street banks are expected to report higher profits for the second quarter as rising interest payments offset a downturn in dealmaking. Nuveen's Chief Investment Officer Saira Malik said companies may find it easier to deliver stronger-than-expected second quarter results as analysts had cut estimates in recent weeks.

"We are cautious about the self-fulfilling optimism driven by these diminished expectations ... we're mindful of mixed U.S. economic data and the potential for two more hikes this year."

The yield on 10-year Treasury notes was down 1.6 basis points to 3.966%, down from an eight-month high of 4.094% touched on Friday.

The dollar index, which measures the U.S. currency against six peers, fell 0.197% at 101.40, having slid as low as 101.37, its lowest in two months.

The euro was up 0.16% to $1.1024, having scaled a two month peak earlier in the session, while the sterling hit 15-month peak of $1.2940.

The Japanese yen continued its ascent and has risen nearly 4% from a seven-month low of 145.07 it touched last month, a level that put traders on alert for possible intervention from Japanese authorities.

The New Zealand dollar was up 0.26% in choppy trading after the country's central bank kept interest rates unchanged at 5.50%.

U.S. crude rose 0.28% to $75.04 per barrel and Brent was at $79.60, up 0.25% on the day. [O/R]

Spot gold added 0.3% to $1,937.99 an ounce, while U.S. gold futures gained 0.33% to $1,937.60 an ounce. [GOL/]