The Chinese economy entered deflation last month, according to data, which increased the likelihood that the government will implement additional stimulus measures and pushed investors into risk assets. As a result, the dollar fell on Wednesday.

The yuan recovered from a one-month low thanks to state-owned Chinese banks selling dollars, according to dealers. The Chinese central bank expressed its unhappiness with the recent falls in the yuan by fixing the exchange rate at a stronger-than-expected 7.1588 per dollar before the market opened.

According to data released on Wednesday, consumer prices in China declined in July for the first time in more than two years. The figures confirmed the belief of some investors that the Chinese government could take action to support the economy with monetary stimulation rather than increasing safe-haven demand for the dollar.

EUR/USD edged up by 0.2% to $1.0978.

GBP/USD slipped 0.1% to $1.274.

European markets saw some relief after stocks fell the day before as a result of the Italian government's unexpected announcement of a 40% windfall tax on banks. The finance ministry later changed its position, although the first ruling reduced the value of major euro zone lenders' shares by 3.5%.