U.S. economic activity continued to expand from early April to mid-May, according to the Federal Reserve's Beige Book, although conditions varied across industries and districts. The report also said prices increased at a modest pace over the reporting period and are expected to continue to grow at a modest pace in the near term.

Swiss stocks turned in a weak performance on Tuesday as concerns about the outlook for Federal Reserve's interest rates weighed on sentiment. Data on U.S. personal income and spending, which includes readings on inflation said to be preferred by Fed, due later in the week is in focus for clues about the outlook for interest rates.

European stocks closed on a very weak note on Wednesday with several markets dropping to multi-week lows, amid uncertainty about the outlook for Fed interest rates, ahead of some crucial inflation data, including a reading on U.S. income and spending.

The pound declined against its major counterparts in the New York session on Wednesday, as a jump in U.S. Treasury yields stoked concerns that U.S. interest rates will likely stay higher for longer.

Germany's consumer price inflation accelerated in May and core inflation remained steady, suggesting the stickiness of inflation that could cloud the outlook for the European Central Bank as it prepares to lower interest rates next week. Inflation, based on the harmonized index of consumer prices or HICP, climbed to 2.8 percent from 2.4 percent in April.

The AUD/USD pair rose to 0.6650 on Wednesday following the release of Australian economic data. Australia’s consumer price index (CPI) accelerated to 3.6% year-on-year in April, up from 3.5% in March.

Expert market comment made by senior analyst Alex Kuptsikevich of the FxPro Analyst Team: Accelerating German inflation supports the euro on the downturn

Expert market comment made by senior analyst Alex Kuptsikevich of the FxPro Analyst Team: Australia's inflation is ticking up despite weak retail sales

US stock indices under pressure as yields climb. German CPI could dictate next week’s ECB rhetoric. Yen underperformance lingers; all eyes on Friday’s Tokyo CPI

The Dollar Index, which measures the value of the Greenback against 6 major currencies, steadied to finish with modest gains at 104.63 (104.55 yesterday).