While Dunn, who has 18 months left on his contract, played under Hughes during the Welshman's four-year reign at Ewood Park.
City are keen to offload a number of players during the transfer window, and Hughes has set his sights on a reunion with Wright-Phillips.
The 29-year-old has featured just three times in the Barclays Premier League for Roberto Mancini's side this season and would be prepared to take a hit in his current £60,000-a-week wages in a bid for first-team football.
Dunn has finally put his injury troubles behind him, and Hughes could land the 31-year-old midfielder for a fee in the region of £2m.
Although the Fulham chief will face tough competition from Newcastle, who are also expected to move for the Blackburn man.