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The dollar sank to a two-month low against its major peers on Wednesday in the lead-up to a key U.S. inflation reading, while sterling scaled a 15-month top on expectations the Bank of England (BoE) has further to go in raising rates.

The New Zealand dollar was volatile after the Reserve Bank of New Zealand (RBNZ) on Wednesday kept rates on hold, as expected, and said that its cash rate would need to "remain at a restrictive level for the foreseeable future".

The kiwi was last 0.56% higher at $0.6233. The Aussie was also higher, up 0.78% at $0.6739.

"The (RBNZ) statement and minutes retained their dovish undertone overall, but they can't not warn that inflation is still 'too high' as they need to contain inflation expectations," said Matt Simpson, senior market analyst at City Index.

"But with an economy now in recession, it's a relatively safe bet that we've seen the terminal rate. And that means the next theme for investors to obsess over is when the RBNZ will begin cutting rates."

The broader market focus remained on U.S. inflation data due later on Wednesday, with expectations for core consumer prices to have risen 5% on an annual basis in June.

The figures should provide further clarity on the Federal Reserve's progress in its fight against inflation.

Ahead of the release, the U.S. dollar fell to a two-month low of 101.37 against a basket of currencies, extending its losses from the start of the week after Fed officials said the central bank was nearing the end of its current monetary policy tightening cycle.

The greenback tumbled as much as 0.7% against the Japanese yen to a one-month low of 139.37 yen, while the euro touched a two-month peak of $1.1033.

"We're already seeing markets move in anticipation of a softer U.S. inflation report," said City Index's Simpson. "That runs the risk of a 'buy the rumour, sell the fact' reaction if the figures come in around expectations."

Sterling peaked at a 15-month high of $1.2970 in Asia trade, bolstered by bets the BoE will have to tighten monetary policy further to tame British inflation that is running at the highest rate of any major economy.

Data out on Tuesday showed that a key measure of British wages rose at the joint fastest pace on record as basic earnings in the three months to May surged 7.3%, higher than expectations of a 7.1% rise.

Current market pricing indicates roughly another 140 bps of rate hikes from the BoE.

U.S. Treasury yields came under pressure on Wednesday, with the two-year yield and benchmark 10-year yield settling below 5% and 4%, respectively. [US/]

The slide in Treasury yields has provided some respite for the yen, given the sensitivity of the dollar/yen pair to U.S. yields while Japanese interest rates remain anchored near zero.

Analysts said the Japanese currency has also drawn some support from expectations that the Bank of Japan (BOJ) could tweak its controversial yield curve control (YCC) policy at its meeting this month.

"Although steady policy appears to be the most likely outcome for the July policy meeting, it is widely expected to bring upgraded inflation forecasts and the market will continue to hope that the BOJ may offer some signal as to when YCC could be adjusted," said Jane Foley, head of FX strategy at Rabobank.

"Speculation of a possible tweak could allow the (yen) some support ahead of the BOJ meeting this month."