The U.S. dollar strengthened against most major currencies in the European session on Wednesday amid risk appetite, as traders looked ahead to the release of key inflation data this week for direction.

On Friday, the U.S. Commerce Department is due to release its report on personal income and spending for April, which includes readings on inflation said to be preferred by the Federal Reserve.

The inflation data could have a significant impact on the outlook for interest rates ahead of the Fed's next monetary policy meeting on June 11-12.

The U.S. economic calendar remains relatively quiet today, although the Fed's Beige Book may attract some attention.

The European share markets traded lower, as investors fret about the outlook for rates and watch closely the latest developments in the Middle East.

Traders further reduced their rate cut expectations by the U.S. Federal Reserve after Minneapolis Fed President Neel Kashkari said he needs to see "many more months of positive inflation data" before he would consider cutting interest rates.

Meanwhile, Iranian-backed Houthis have reportedly fired five anti-ship ballistic missiles from Yemen into the Red Sea, raising concerns over maritime safety and adding to heightened tensions in the Middle East.

In the European trading today, the U.S. dollar rose to 2-day highs of 1.0844 against the euro and 1.2746 against the pound, from early lows of 1.0861 and 1.2771, respectively. The greenback may test resistance around 1.07 against the euro and 1.25 against the pound.

The greenback edged up to 0.9127 against the Swiss franc, from an early low of 0.9111. On the upside, 0.92 region.

Moving away from an early low of 0.6666 against the Australian dollar, the greenback advanced to 0.6642. The greenback had rose earlier to 2-day high of 0.6639 against the aussie. The next possible upside target for the greenback is seen around the 0.65 region.

Against the New Zealand and the Canadian dollars, the greenback climbed to a 2-day high of 0.6125 and a 5-day high of 1.3673 from early lows of 0.6148 and 1.3639, respectively. If the greenback extends its uptrend, it is likely to find resistance around 0.60 against the kiwi and 1.38 against the loonie.

Looking ahead, U.S. mortgage approvals data, U.S. Redbook report, U.S. Richmond Fed manufacturing index for May and U.S. Dallas Fed services index for May are slated for release.

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