(Updates prices) The dollar headed for its biggest monthly gain...

(Updates prices)

The dollar headed for its biggest monthly gain since September and the yen for its sharpest drop in nearly a year on Wednesday, as traders waited on a U.S. rates decision to round out January.

The dollar has gained 2% against a basket of major currencies this month =USD as markets dialled back expectations on the speed and scale of rate cuts in the face of strong U.S. economic data and pushback from central bankers.

In Japan, meanwhile, tepid wage growth and cooling inflation dulled expectations for hikes, driving the yen down more than 4% on the dollar in January, its largest fall since Feb. 2023.

The dollar was steady at $1.0844 per euro EUR=EBS and a touch weaker at 147.23 yen JPY=EBS early in the Asia day, with a summary showing discussion of ending negative interest rates at the Bank of Japan's January meeting helping support the yen.

The dollar index =USD last sat at 103.36. Sterling GBP=D3 hovered at $1.2698.

Later, the Federal Reserve is expected to hold U.S. interest rates steady but flag cuts are coming by dropping language indicating it is weighing further hikes.

Interest rate futures price a roughly 43% chance of a Fed rate cut in March, down from 73% at the start of the year.

"The market reaction to the (Fed) meeting and its spillover onto most asset markets is likely to be largely captured by the impact on the probability of a rate cut at the March meeting," said Deutsche Bank's chief international strategist Alan Ruskin.

The pricing tends to influence the euro/dollar rate, he noted, with a 50-50 probability consistent with the euro at $1.087. "A 100% probability of a rate cut would point to euro/dollar at $1.1080, while a rate cut that is fully ruled out for March would point the way to euro/dollar at $1.0660," he said.

Ahead of the Fed, European inflation figures are expected. Australian inflation came in marginally below economist forecasts, reinforcing bets the central bank is done hiking.

The Aussie AUD=D3 slipped 0.2% to $0.6588. The New Zealand dollar NZD=D3 was steady at $0.6133.

Expectations of interest rate cuts in China have driven a strong rally in the bond market this month while the yuan has been squeezed by flight from China's crumbling equity markets.

The Chinese currency CNY=CFXS held at 7.1781 on Wednesday, down 1% for the month. China's manufacturing activity in January contracted for a fourth straight month, an official survey showed, suggesting the sprawling sector was struggling for momentum.

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	Currency bid prices at 0153 GMT 

 Description	  RIC		 Last		   U.S. Close  Pct Change	 YTD Pct	 High Bid	Low Bid 
											  Previous				   Change				  
											  Session											
 Euro/Dollar	   EUR=EBS																	   

							  $1.0835		 $1.0845	-0.09%		  +0.00%	  +1.0847	 +1.0835 
																								 
 Dollar/Yen		JPY=EBS																	   

							  147.5650		147.6100   -0.02%		  +0.00%	  +147.6000   +147.2050 
																								 
 Euro/Yen		 
				  S>		  159.88		  160.07	 -0.12%		  +0.00%	  +160.0700   +159.6500 
																								 
 Dollar/Swiss	  CHF=EBS																	   

							  0.8622		  0.8619	 -0.02%		  +0.00%	  +0.8622	 +0.8617 
																								 
 Sterling/Dollar   GBP=D3																		

							  1.2687		  1.2701	 -0.10%		  +0.00%	  +1.2700	 +1.2688 
																								 
 Dollar/Canadian   CAD=D3																		

							  1.3411		  1.3398	 +0.10%		  +0.00%	  +1.3411	 +1.3395 
																								 
 Aussie/Dollar	 AUD=D3																		

							  0.6573		  0.6603	 -0.46%		  +0.00%	  +0.6603	 +0.6571 
																								 
 NZ				NZD=D3																		

 Dollar/Dollar				0.6125		  0.6136	 -0.19%		  +0.00%	  +0.6136	 +0.6124 
																								 
																								 
	 
All spots  FX=  
Tokyo spots  AFX=  Europe spots  EFX=   Volatilities  FXVOL=   Tokyo Forex market info from BOJ  TKYFX  
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World FX rates	https://tmsnrt.rs/2RBWI5E 

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