The US dollar fell against most major currencies on Wednesday, driven by speculation that the US Federal Reserve would soon initiate interest rate cuts, ahead of impending inflation data later in the week.

However, the yen stood out as an exception, with the dollar maintaining its strength against it, following the Bank of Japan's silence on ending its ultra-loose monetary policy the day before.

Fed officials responded to last week's Federal Open Market Committee meeting, where three rate cuts for 2024 were suggested, causing a surge in financial markets.

Presently, market participants are estimating a 67.5 per cent likelihood of the first rate cut occurring at the Fed's March meeting, according to the CME FedWatch tool.

"The proverbial genie is out of the bottle now, and the Fed either has to accept that and risk easing policy prematurely or push back very hard and cause a bit of volatility in the markets," explained Kyle Rodda, senior financial market analyst at Capital.com.

Atlanta Federal Reserve President Raphael Bostic, anticipating two rate cuts in the latter half of the year, said there is no "urgency" currently. Richmond Fed President Thomas Barkin stated that the central bank's ability to implement forecasted rate cuts depends on economic performance.

The dollar index, after a 0.3 per cent slide on Tuesday and reaching a four-month low of 101.76 last week, was mostly flat at 102.20.

Ultimately, the direction of the dollar will hinge on economic data supporting the anticipated rate cuts, according to Rodda.

"The US dollar is the inverse of the so-called 'everything rally,' which will beat on if the data confirms the need for cuts next year," he noted.

The core Personal Consumption Expenditures (PCE) price index, the Fed's preferred measure of underlying inflation, is scheduled for release this week, potentially offering insights into whether inflation has slowed enough for the Fed to consider easing policy next year.

Meanwhile, the yen remained subdued at 143.78 yen against the dollar, influenced by the Bank of Japan's decision and Chief Kazuo Ueda's non-committal stance on ending negative interest rates.

National Bank of Australia's Senior FX Strategist Rodrigo Catril noted that Ueda's “lack of 'hawkishness' should reinforce the perceptions that next April is the earliest likeliest date for a policy shift.”

In other currency news, the euro maintained its strength at $1.0973, while the British pound traded at $1.2724, having gained ground against a weaker dollar on Tuesday.

In the realm of cryptocurrencies, bitcoin saw a 0.44 per cent increase, reaching $42,446.00.

(With Reuters Inputs)