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The dollar steadied on Wednesday after hitting a four-week high against peer currencies overnight as market players awaited key U.S. inflation data and the Federal Reserve's updated interest rate projections due later in the day.

Ahead of those crucial events, markets got a fresh check on the state of China's economy.

Data showed consumer inflation rose at a steady pace in May, while producer price declines narrowed slightly, adding to signs that government efforts to prop up the economy were starting to bear fruit.

The offshore Chinese yuan firmed slightly versus the greenback to 7.2697.

The dollar index, which measures the greenback against a handful of other major peers, was little changed at 105.26, after touching its strongest level since May 14 at 105.46 overnight.

The U.S. dollar has rebounded after Friday's stronger-than-expected jobs report raised the prospect of inflation remaining sticky while growth stays strong, making the U.S. central bank less likely to cut rates in the coming months.

Markets are pricing in a roughly 56% chance of a cut in September, according to the CME FedWatch tool, down from 77.8% one week ago.

Investors will have a chance to assess the inflation situation when U.S. Consumer Price Index numbers are released at 1830 GMT on Wednesday, just hours before the Fed concludes its two-day policy meeting.

Economists polled by Reuters expect headline consumer price inflation to ease to 0.1% from 0.3% last month, and core price inflation to remain steady on the month at 0.3%.

Meanwhile, the Fed is widely seen holding rates at 5.25% to 5.5%, putting the focus on policymakers' updated economic projections known as the "dot plot" and Chair Jerome Powell's news conference for clues of how soon cuts could begin.

"Consensus seems to be that the number of cuts in 2024 will be downgraded from three currently to two" in the latest dot plot, said Kieran Williams, head of Asia FX at InTouch Capital Markets.

Powell is likely to strike a relatively dovish tone, however, given disappointing growth indicators since the last Fed meeting, Williams said.

The euro was flat at $1.0740, keeping off Tuesday low of $1.07195, which was its weakest level since May 2.

Sterling was unchanged at $1.27395. UK gross domestic production figures for April are due later on Wednesday.

BOJ'S BALANCING ACT

The Bank of Japan (BOJ) will also meet this week, where it is widely expected to keep interest rates steady and consider whether to offer clearer guidance on how it plans to reduce its huge balance sheet.

"The BOJ will have to walk a tightrope in its policy meeting this week to avoid inadvertently stoking JPY outflows, while also supporting growth and preventing disorderly JGB markets," said Wei Liang Chang, currency and credit strategist at DBS.

The dollar held the yen pinned at 157.06, although the currency pair remained off the one-week high of 157.40 touched the previous day.

While Japan's central bank will likely discuss bond buying cuts to pre-empt yen selling pressure, dollar/volatility this week largely depend on Wednesday's U.S. CPI and Fed meeting, Chang added.

The yen's decline to a 34-year low of 160.245 per dollar at the end of April triggered several rounds of official Japanese intervention totalling 9.79 trillion yen ($62.31 billion).

Japan's wholesale prices in May rose 2.4% from a year earlier, marking the fastest annual increase in nine months, data showed on Wednesday.

In cryptocurrencies, bitcoin last fell 0.36% to $67,040.00.

($1 = 157.1100 yen)