By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The dollar dropped to a six-week low against a basket of currencies on Tuesday, pressured by expectations the Federal Reserve would delay raising interest rates after recent soft U.S. economic data.
The U.S. currency also slid to a three-week trough against the yen, as the Japanese government approved a largely expected set of stimulus measures. The dollar also fell to its lowest in six weeks against the euro.
The greenback extended losses after U.S. data showed little inflation. A key inflation measure - the core personal consumption expenditure index - grew by a modest 0.1 percent in June, which kept the annual inflation rate unchanged at 0.9 percent.
On Friday, the U.S. government reported tepid gross domestic product growth for the second quarter.
In late trading, the dollar index <.DXY> fell 0.7 percent to 95.048, after earlier sliding to 95.0031, the lowest level since June 24.
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"The dollar has appreciated for almost the entirety of July and it has given it all back in the last four trading days. The weak data has contributed to the decline in the dollar," said Richard Benson, managing director and co-head of portfolio investments at Millennium Global Investments in London.
Millennium oversees $15 billion in assets.
Fed funds futures suggested just a 12 percent probability the U.S. central bank will hike rates next month, and around 33 percent in December, according to CME Group's FedWatch late on Tuesday.
Against the yen, the dollar declined 1.5 percent to 100.89 yen <JPY=>, after earlier touching a three-week low of 100.69 yen.
Japanese Prime Minister Shinzo Abe's Cabinet approved 13.5 trillion yen ($132 billion) in fiscal measures on Tuesday. Instead of falling, the yen rallied because the stimulus package was in line with expectations and followed easing moves by the Bank of Japan that were perceived as less aggressive than anticipated.
Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York, said dollar/yen stands perilously close to the 100 yen level.
"Japanese authorities may be forced to once again consider intervention although prior episodes have proved futile," he said.
The euro, meanwhile, rose to a six-week high against the dollar and was last up 0.5 percent at $1.1227 <EUR=>.
Also on Tuesday, the Reserve Bank of Australia cut interest rates by a quarter percentage point, but the Australian dollar rallied. The Aussie currency was last up 1.0 percent at U.S. $0.7608 <AUD=>.
BK's Schlossberg said traders viewed the move as "one and done" by the RBA.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Paul Simao and Chris Reese)