US Dollar notes and euro coins are arranged for a photograph on Sept. 11, 2017.

The dollar fell to a near 1-1/2-month low against a group of currencies on Thursday after data showed U.S. consumer prices increased less than expected in August, paring traders' outlook that domestic inflation is accelerating.

Signs of reduced trade tensions between China and the United States after Washington reached out to Beijing on Wednesday to restart trade talks also pressured the greenback.

"The safe-haven demand for the dollar has diminished the past two days on positive trade developments between U.S. and China," said Peter Ng, senior currency trader at Silicon Valley Bank in Santa Clara, California. "Today's CPI miss has added downward pressure on the dollar."

The U.S. Labor Department said its Consumer Price Index, the government's broadest inflation gauge, rose 0.2 percent in August, less than the 0.3 percent increase projected by analysts polled by Reuters. Despite the CPI miss, traders did not change their view the Federal Reserve would raise key short-term interest rates by a quarter point to 2.00 percent-2.25 percent at its policy meeting in two weeks.

They also anticipated the Fed would increase rates for a fourth time this year in December. An index that tracks the dollar against six major rivals hit a near six-week low at 94.428. At 3:42 p.m., it was down 0.25 percent at 94.56.

The greenback weakened for a fourth straight day against the euro and sterling on hopes that Britain and the European Union would hammer out trade terms before the Britain leaves the economic bloc next March.

The common currency rose to a two-week peak against the dollar at $1.17010 before subsiding to $1.1678, up 0.4 percent on the day, EBS data showed. The pound hit a six-week high versus the dollar at $1.3124. It was last at $1.3095, up 0.36 percent.

The European Central Bank and Bank of England as expected left interest rates unchanged on Thursday. The ECB signaled it was on track to dial back its bond purchases later this year, while the BOE highlighted concerns from Brexit.

Turkey's central bank raised its benchmark rate by 625 basis points on Thursday in a bid to shore up the lira and soothe investor concern about President Tayyip Erdogan's influence on monetary policy.

Turkey's lira rallied 4 percent at 6.08 per dollar. It had slumped to a record low of 7.2400 in mid-August, raising investor expectations for the central bank to tighten monetary policy and arrest the currency's slide.