By Gregor Stuart Hunter and Johann M Cherian
July 30 (Reuters) - The dollar weakened against the yen on Thursday ahead of a U.S. inflation report that investors will scrutinize to gauge the path for interest rates, a day after the Federal Reserve left markets guessing about its future monetary policy.
The yen popped 0.3% to a one-week high of 162.88 to the dollar, although traders said the spike did not reflect any signs of an intervention by Japanese authorities to halt the currency's slide to new
multi-decade lows.
The dollar had risen against most major currencies early on Thursday after the U.S. said it was conducting air strikes in Iran, which generated appetite for safe havens among investors.
However, it came under pressure as the focus shifted to the Personal Consumption Expenditures Index due at 1230 GMT.
Economists expect the index to show price pressures rose by 3.7% on an annual basis in June, down from 4.1% the month before, as energy costs moderated during the brief détente between Iran and the U.S.
The euro was flat at $1.1477, while the dollar index, which measures the dollar's strength against six other currencies, was muted at 100.67, having hit a one-week low in the previous session.
"Warsh's comments at the press conference also did not suggest the Fed is in a rush to hike, and he referred to a 'period of watchful thinking'," a group of analysts led by Mark Haefele at UBS wrote in a note.
"The market interpreted the FOMC statement and Warsh's comments dovishly," the UBS analysts said.
Traders are ramping up their expectations for the Fed to leave interest rates unchanged again in September, with the probability for a hold now at 34.8%, compared with a 24% chance before the latest meeting, the CME Group's FedWatch tool showed.
BOE TO ALSO WAIT AND WATCH
The Bank of England kept interest rates on hold as expected on Thursday, but the pound firmed 0.1% to $1.338 after a third policymaker backed a rate hike due to renewed U.S.-Iran conflict. Most economists polled by Reuters expected a 7-2 split in the Monetary Policy Committee.
Sterling also firmed against the euro, which fell nearly 0.1% to 85.68 pence.
"The increase in dissenters suggests concern about inflation risks is spreading within the MPC and increases the chance that rates could move higher if inflation doesn't continue to moderate," said Felix Feather an economist at Aberdeen.
Traders are pricing in a 34.5% chance that the BoE will hike interest rates in September, LSEG-compiled data showed.
The focus will later shift to the Bank of Japan's interest rate verdict on Friday as traders mull the possible rhetoric from policymakers that could pull the yen above this month's 40-year lows.
Economists anticipate Japanese interest rates will stay at 1%. However, recent reports show that central bankers are considering a faster pace of interest-rate hikes, as the economy reels from inflation pressures as the Gulf conflict rages on.
In cryptocurrencies, bitcoin was up 2.1% at $64,802.4, while ether was up 2.1% higher at $1,923.2.
(Reporting by Gregor Stuart Hunter, Johann M Cherian and Sophie H. Kiderlin; Editing by Amanda Cooper Anil D'Silva and Arun Koyyur)
