The dollar weakened in early European trading Thursday, falling to two-week lows after further indications that U.S. interest rate hikes are still a distant event following the conclusion of the latest Federal Reserve meeting. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 92.157, just higher than the two-week low of 92.097 reached earlier Thursday. 

USD/JPY fell 0.1% to 109.78, GBP/USD rose 0.2% to 1.3931, climbing to a one-month high, EUR/USD rose 0.1% to 1.1856 ahead of German data on inflation and unemployment, while the risk-sensitive AUD/USD rose 0.1% to 0.7385.

The U.S. central bank kept interest rates steady on Wednesday at the end of its latest two-day meeting, as widely expected, while suggesting that the U.S. economy was making progress towards the levels where the Fed members would agree to tapering monthly bond purchases.

However, comments from Chairman Jerome Powell that rate increases were "a ways away" and that the job market still had "some ground to cover” before the central bank begins to taper its assets weighed on the dollar.

His comments mean that investors will be keeping a close eye on the latest economic data. The weekly initial jobless claims, due at 8:30 AM ET (1230 GMT), are set to show a continued decline, while the second quarter GDP release at the same time is expected to show 8.5% annualized growth, a sharp increase from the 6.4% growth seen in the previous quarter.

“We still find it likely that a tapering decision is taken in September with a formal slowdown of the purchases from December and onwards,” said analysts at Nordea, in a note. “We expect the Fed to be able to finalize tapering by the summer of 2022.”

Elsewhere, USD/CNY edged 0.3% lower to 6.4731, with the yuan regaining a lot of the ground it lost due to the regulatory onslaught against technology companies that rattled local equity and bond markets. .

Helping the tone Thursday were reports saying that China's securities regulator called a select group of foreign and Chinese banks and institutional investors late on Wednesday to try and soothe nerves. CNBC reported that China would continue to allow companies to list in the United States.

By Peter Nurse, 29 July 2021. Investing.com