Thai investor sits in front of electronic board displaying live market data at stock broker's office in central Bangkok

Asian equities inched lower on Wednesday ahead of a crucial U.S. inflation report that will likely influence the Federal Reserve's monetary policy path, with markets wagering another hike in interest rates at the central bank's next meeting.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.17% lower in choppy trading. Japan's Nikkei was 0.49% higher, while Australia's S&P/ASX 200 index rose 0.65%.

China shares were mixed at the open, with the Shanghai Composite Index up 0.1% while Hong Kong's Hang Seng Index lost 0.02%. Data on Tuesday showed China's consumer inflation in March was at its slowest since September 2021.

After Friday's jobs report showed a resilient U.S. labour market, emboldening bets of a 25 basis point hike at the Fed's next meeting in May, investor attention is firmly on the March inflation report due later in the day.

The consumer price index is expected to show core inflation rose 0.4% on a monthly basis and 5.6% year-over-year in March, according to a Reuters poll of economists.

"Investors are hopeful that Wednesday's inflation data could signal that the Federal Reserve was getting near the end of its rate hike cycle," said Harry Ottley, an economist at Commonwealth Bank of Australia, noting focus continues to shift from banking wobbles in March back to the inflation problem.

Markets are now pricing in a 66% chance of the Fed raising interest rates by 25 basis points in May and then pausing for the subsequent meetings, according to the CME FedWatch tool.

Philadelphia Federal Reserve Bank President Patrick Harker on Tuesday said he feels the U.S. central bank may soon be done raising interest rates, but reiterated the desire to bring inflation back to its 2% target.

The Fed last month raised interest rates by a quarter of a percentage point, taking it to a range of 4.75% to 5.00%.

Minutes of its March meeting are due to be released later in the day and investors will parse through it for clues on the monetary path of the central bank as well as the impact of the banking stresses in March.

The turmoil in the banking sector had spurred some expectations that the Fed may need to cut interest rates to alleviate some of the stress in the market but a sticky inflationary environment is unlikely to give the Fed much room.

"Investors seem to be getting ahead of themselves in expecting the Fed to begin cutting interest rates", said Luca Paolini, chief strategist at Pictet Asset Management.

Like other central banks, the Fed's hands are tied - a high inflation rate will prevent it from providing monetary stimulus in the coming months, Paolini said in a note.

The International Monetary Fund warned on Tuesday that lurking financial system vulnerabilities could erupt into a new crisis and slam global growth this year as it lowered its 2023 global growth forecasts.

In the currency market, the dollar index, which measures the U.S. currency against six rivals fell 0.049%. The euro was up 0.12% at $1.0923, while sterling was last trading at $1.2431, up 0.06% on the day.

The yen strengthened 0.04% to 133.63 per dollar. The IMF said the Bank of Japan could help prevent abrupt policy changes later by allowing more flexibility in its bond yield curve control.

Changes to the BOJ's yield control policy may affect financial markets through exchange rates, term premiums on sovereign bonds and global risk premiums, the IMF said.

U.S. crude rose 0.07% to $81.59 per barrel and Brent was at $85.73, up 0.14% on the day. [O/R]

Spot gold added 0.3% to $2,009.72 an ounce. U.S. gold futures gained 0.10% to $2,006.90 an ounce. [GOL/]