By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The dollar eased to a 3-day low against a basket of currencies on Thursday as the previous session’s risk aversion-led lift for the U.S. currency faded and traders braced for Friday’s U.S. inflation figures for clues to the path of future Fed policy.

Wall Street’s main indexes opened higher on Thursday, recovering from a broad sell-off in the prior session as investors clung to hopes of borrowing costs easing next year.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose just marginally last week, suggesting underlying strength in the economy as the year winds down. Separate data showed gross domestic product increased at a 4.9% annualised rate last quarter, revised down from the previously reported 5.2% pace.

The Federal Reserve held interest rates steady last week and policymakers signalled in new economic projections that the historic monetary policy tightening engineered over the last two years is at an end and lower borrowing costs are coming in 2024.

Attention now turns to Friday’s reading on U.S. core personal consumption expenditure (PCE) index. A rise of 0.1% for November would see the six-month annualised pace of inflation slow to just 2.1% and almost at the Federal Reserve’s target of 2%.

Markets reckon the slowdown in inflation means the Fed will have to ease policy just to stop real rates from rising, and are wagering on early and aggressive action.

“The U.S. dollar is the weakest major currency today amidst mixed economic data,” said Matt Weller, head of market research at StoneX.

After this week’s soft inflation reading in the UK, traders fear that tomorrow’s U.S. core PCE report may cement the likelihood of a March interest rate cut from the Federal Reserve, Weller said.

Sterling was up 0.21% at $1.2666 against the dollar on Thursday, a day after suffering its sharpest drop in two months after British inflation dived below forecasts to an annual 3.9% in October, a two-year low, prompting traders to price in Bank of England rate cuts as soon as May.

The , which tracks the U.S. currency against six peers – was last down 0.439% at 101.96.

Some analysts said month-end rebalancing in thin trade could weigh on the dollar in the near term.

“US equity market outperformance through December rather suggests that passive hedge rebalancing flows will run against the USD through month end,” said Shaun Osborne, chief FX strategist at Scotiabank.

The dollar was 0.83% lower against the Japanese yen after Japan’s government on Thursday slightly raised its economic growth projections for this fiscal year from its previous estimates.

The yen was still about 8% lower against the dollar for the year as the Bank of Japan has steadfastly kept short-term rates negative, against 300 basis points of U.S. interest rate hikes.

The risk-sensitive Australian and New Zealand dollars traded higher on the day. The was last up 0.73% at $0.67795, earlier having touched $0.6791, its highest since July. The traded 0.5% at $0.6279, near a 5-month high.

was 0.17% higher at $43,741, just below last week’s 20-month high of $44,729.